The amount of cover you should purchase will not only depend on how much you earn but also the lifestyle of your family. If you have any financial commitments or if you have assets then this will also influence your decision regarding the amount of life insurance you should purchase. As a general rule, people with dependants such as young children, elderly parents or an unemployed spouse should purchase a life cover that equals at least 3-4 years of the policy holder’s salary. This means that if you earn $50,000 every year then you should purchase a policy that offers at least $150,000 to $200,000 as death compensation.
If you are planning to purchase an income insurance plan to protect yourself and your family then the minimum compensation amount you should opt for should be 50% of your annual pre-tax income; however insurers allow buyers to purchase income covers that can total up to 75% of the buyer’s annual pre-tax income.
The amount you pay towards premiums will be determined by the amount of cover you opt for. The features of the plan along with limitations if any will also determine if you can get an affordable life insurance plan or if you will have to pay high premiums for life insurance. If you opt for a significant amount of cover but opt for exclusions or premium loading fees then you may be asked to pay lower premiums. As a general rule, if you opt for more benefits then you will have to pay higher premiums. If you opt for additional paid benefits such as the day one accident benefit that is offered with income protection insurance plans then you will have to pay an additional fee.
The type of cover along with the waiting period and benefit period will determine how much you pay towards premiums. If you opt for a policy with a combination of a longer waiting period and a shorter benefit period then you may be asked to pay lower premiums.
Choosing a longer waiting period and a shorter benefit period for income covers is ideal only if you have assets or an emergency fund that you can depend on if there is an emergency while the waiting period is active or after the benefit period is over. Choosing a term life cover with a longer benefit period is not ideal for people with one or more pre-existing health conditions.
Your health status, your smoking status along with any sports you may play will also influence the premiums you pay. People with pre-existing conditions and people who smoke can get insurance plans however; these plans may cost more than regular insurance plans. If you play rough sports or if drive a sports car and ride a sports bike then your premiums will increase. As far as possible, high risk buyers should opt for a policy with the least number of exclusions and restrictions unless they have severe budgetary constraints.