When it comes time to purchasing life insurance, there a number of policies available that can match your needs without hurting your pocketbook.
Life insurance companies price their policies very competitively, so if you do your homework and keep your options open, finding a good deal could be easier than you think.
Here are some common tips you can use to reap savings on life insurance:
1. Know your options
There are specific policies that fit your needs and others that do not. This makes choosing the right policy more important than you might think.
For example, term life insurance is ideal for families who are just starting out and need cover for a specific amount of time while permanent life insurance is ideal for those seeking additional tax-privileged savings components.
“Term insurance is initially the least expensive form of life insurance you can buy,” said Brian Ashe, CLU and spokesperson for the LIFE Foundation. “A young family just starting out can get a lot of term insurance for a relatively low premium.”
If you decide that term is the best policy for you, you might want to think about purchasing a policy with a “guaranteed renewal” or “annual renewable” term. This means that the policy automatically renews on it’s own and you won’t be required to take another medical exam.
“If your desired length of coverage is generally longer than 15 or 20 years, permanent insurance looks very attractive from an economic standpoint,” Ashe said. “You may also want to flip over to a universal life policy where you would have the opportunity to level out premiums and build cash values.”
Since there are so many policy options and variations of those policies, it is advisable to consult with a certified insurance adviser before making a decision.
2. Window shop
There is a number of ways you can shop for life insurance, for example, directly from an insurance company, through a licensed agent, by mail or over the Internet. If you aren’t satisfied with the cost of insurance at one company, you can easily check out other policies at other companies to see who has the best deal for your budget.
3. Consider employer-sponsored life insurance
Group life insurance or employer-sponsored life insurance is often a better bet when it comes to saving money. Since employers subsidize insurance costs, it can be much less than an individual life insurance policy you might try to get on your own, especially if you smoke or have a preexisting medical condition.
But if you are young and healthy and don’t smoke, you are paying premiums that are subsidizing the older, sicker workers in the group, so it’s possible to get a better rate for a policy you seek out on your own.
Also, if you have a preexisting medical condition with a group policy you rarely have to provide evidence of good health to a group insurer. However, if your group life policy exceeds $50,000, the IRS considers policies over $50,000 as taxable income.
4. Maintain a healthy lifestyle.
This should be a no-brainer, but when it comes to evaluating your mortality risk, living a long and healthy life will provide you with top-notch insurance premiums. If you don’t smoke this can mean extra money in your pocket when it comes to saving on life insurance premiums.
“There are many variables – age, product, underwriting classification when it comes to smokers rates. At ages 35, 45 and 55 for a $1 million policy with a 20-year term, the nicotine premiums average about 2.5 percent higher than the non-nicotine rates for individuals who qualify for standard and preferred categories,” said Chris Graham, Vice President and Chief Underwriter for The Hartford.
Profile for preferred rates:
- Nonsmoker
- No pre-existing medical condition
- Blood pressure is less than 120/80
- Total cholesterol is below 200 and LDL that is below 100, (recommended by the American Heart Association)
- Body Mass Index (BMI) is between 18.5-24.9 (normal weight according to National Heart Blood Lung Association)
5. Let your agent know if your health statue has improved
If you’ve had a heart attack and are now seeing a specialist and have made significant lifestyle changes — such as quitting smoking or drinking, started exercising or have your weight under control– tell your agent. Anything that improves your health status should be documented and given to your insurer.
If you’re medical history has improved and you’ve established a timeline of positive health status results, this could easily win you a better rate when your policy is up for renewal or you evaluate your insurance needs.
6. Rethink extreme sports
If you were thinking about purchasing life insurance now, this would not be an ideal time to start skiing, scuba diving or BASE-jumping. While your fascination with extreme sports could disqualify you for a life insurance policy altogether, in most cases you will likely receive a rated policy. This could add a surcharge of $2 to 10 or higher per each $1,000 of coverage.
“It is very rare that someone would receive a table four rating (the highest by most standards) for an extreme sport or ‘hazardous avocation’ which is double the premium,” said Jack Dewald, chair of the LIFE Foundation. “A Table four rating is the highest rating you can generally receive on a life insurance policy. It is usually for people with severe medical conditions and is rarely issued for hazardous avocations.”
7. Pay the yearly premium
When you decide on a method of payment for your premium, you can generally pay annually, every six months, every three months or once a month. Insurance experts recommend paying yearly because you may be charged extra fees for paying monthly.
“Typically it is cheaper to pay the yearly premium all in one sum,” says Al Lurty, Senior Vice President and Head of Business Development for ING.. “By paying monthly, quarterly or semi-annually you might have to pay additional charges.”
If you’re young and healthy, refrain from purchasing guaranteed or simplified issues policies
Although these policies are a feasible option for the potentially uninsurable, they bring with them steep premiums. Simplified issue requires no medical exam, some brief health questions, a shorter application turnaround and instant approval, but they also come at a higher rate.
Guaranteed issue policies require no medical examination or health questions and are generally issued to those who can’t find life insurance elsewhere. These policies only provide enough benefit to cover funeral expenses, typically 20,000 dollars. It is also very possible that your premiums will exceed the death benefit.
Neither of these policies are good options for someone who is young, healthy and can find affordable insurance through traditional lines.
8. Reevaluate your insurance needs every year
If the primary reason for taking out a life insurance policy is to replace income in order to protect your dependents from a financial crisis, bear in mind after your children leave the nest and become financially dependent, you may no longer need to have them on your insurance policy. Also, when you are retired and living off social security or investments – such as a pension, you may not have to carry as much life insurance. You can use our life insurance needs calculator to evaluate how much insurance you should purchase.
9. Purchase while you’re young
Life insurance is priced based on your mortality, so anything that puts your mortality at risk is going to cost you more in premiums. This includes your age and any health risks you have when you purchased the policy. Based on age, a male in his 20s might pay $133 in premium for a term life policy with a 10-year term, while a male in his 50s would likely pay $310 to $455 for the same term.
Nevertheless, the cost of insurance varies from company to company and takes a number of health conditions into consideration to determine a rate. You’ll get a better value for your purchasing dollars if you take out a policy at a younger age.