Purchasing life insurance is done in the hopes that you won’t ever need it. So, is it profitable to buy life insurance? Yes, thousands of families in Spain receive this kind of protection each year at a very low cost, according to the data.
The function of life insurance is quite simple. In exchange for receiving a sum of money (e.g., 80,000, 150,000 euros, etc.) from the insurance company in the case of the insured’s passing, the insured makes a payment to the insurance company. They can also be created so that the money is obtained by the insured himself in the event that he needs to file a disability claim.
a security-enhancing policy
As a result, certain limitations are always put in place as a safety measure. According to data from the National Statistics Institute (INE), there is little chance of dying young. For instance, less than 0.21 per 1000 people will die before they turn 20.
Furthermore, the chance of dying at 45 is only 1 in 1,000. These plans give us a lot of peace of mind, even if it is doubtful that they will need to be used; For that reason alone, purchasing life insurance is important.
In 2018, almost 20 million Americans had life insurance, which would pay out in the case of their death. This type of policy is more commonly used when there is a mortgage so that the family can repay the loan if something unfortunate happens.
In reality, 4,800 of the 8,400 families that endure a death or illness that makes it impossible for them to pay their mortgages each year have a policy that will cover the debt.
Is it worthwhile to pay for years?
However, some people might think it is pointless to pay for a service for years if they might never utilize it. They might think that after making numerous payments over a long period of time, more may have been given than received.
But is it really possible to do this? This issue is significantly illuminated by data from Unespa, the association of insurance employers, which also shows how unlikely this option is.
According to data from 2022, only 3.11% of policyholders went away after receiving benefits for more than 30 years. In contrast, 3 out of every 10 policyholders went away within five years after purchasing life insurance. In other words, it is still a good idea to buy life insurance to support surviving family members, even though it is unlikely that these plans will be required (fortunately, few people pass away abruptly).
Let’s examine a few scenarios to see if purchasing life insurance is worthwhile. Remember that the cost of these plans increases with age and the amount insured with each passing year.
A 30-year-old lady takes out a loan for 100,000 euros for $46, She made the 57 euro yearly payment for five years before her demise. Her investment of less than 300 euros will yield 100,000 euros for her beneficiaries.
A 50-year-old man insures 25,000 euros for 620 euros annually. Eight years of payments later, when the premium reaches 1180 euros, he passes away. Over that period, he will have spent about 7,500 euros, yet his family will still be given the sum of 250,000.
How can one determine how much to insure?
Buying life insurance is still a good idea, even if the payout is stretched out over several years. However, the most important thing is that the beneficiaries get enough money to pay the debts and expenses the deceased left behind. Therefore, it’s essential to understand how much money to withdraw.
Generally speaking, life insurance is profitable when it pays out for at least five years of full salary. It is anticipated that a family will need that sum to recover financially after a member passes away or becomes ill (remember that these policies can also cover serious illness or disability).
A person who earns 25,000 euros a year, for instance, must have at least 125,000 euros insured. To get a more precise estimate, any unpaid loans or commitments should be added to that amount.
How to determine capital
To help you with your number crunching, use our comparator. The area that says, “Enter the amount you want to insure,” has a tiny button with the label “Calculate it here.” The comparator will only take into account the following elements when calculating how much capital you’ll need:
- the outstanding balance of your mortgage. as an example: 80,000 euros.
- Do you want to protect any further loans? a car loan, a loan for your children’s college, etc. Let’s say they add up to an additional 50,000 euros.
- How monthly income target have you set for your family? 1000 Euros, as an example.
- How long you want to make that monthly contribution to your family. for instance, five years.
Using the stages of the comparator and the offered examples That person needs to withdraw a minimum of 190,000 euros in total.
Why it is beneficial to purchase life insurance
The data ultimately show that getting life insurance is advantageous. Nobody wants to think about death, the chance of missing our children’s development, or the possibility of not achieving all of our goals.
But even though it is quite unlikely, it is a possibility. Given the low cost of life insurance, it makes financial sense to keep it in place for a while in order to provide your family and yourself with the assurance that your finances will be secure no matter what.