Getting a life insurance policy doesn’t need to be expensive or complicated.
The following are some of the best ways to get a great deal on a life insurance policy that I’ve shared with my clients over the years. By applying the following tips, you can easily save money on your premiums while still getting the right amount of protection for your needs.
7 Ways to Save Money on Life Insurance
1. Buy While You’re Still Young & Healthy
Two of the biggest factors that determine how much you’ll pay in premiums are your current health and age.
The sooner you purchase a policy, the less you’ll have to pay compared to if you wait a few years. The reason, of course, has to do with the increased risk associated with being older.
When you get a quote, you’ll be assigned a health class based on the answers you provide about yourself. The better the health rating you get, the higher up in the health class you’ll go which means lower premiums.
You’re also giving yourself the ability to avoid paying expensive premiums if you’re able to lock-in a policy at a guaranteed premium rate. Let’s say you purchased a $250,000, 20-year term life coverage at $15 per month when you turned 30.
Upon hitting 40 years old, your health starts to decline and a couple of minor health conditions begin popping up. If you tried to purchase the same policy at this age and health condition, the monthly premium you’ll pay will be much higher. But, since you bought it earlier at a fixed-rate, you avoided the dilemma of expensive premiums associated with older age and poorer health conditions.
2. Find the Benefit Sweet Spot
Life insurance companies price their death benefit policies in segments, with each one having a specific rate per thousand. These are called life insurance rate bands. It’s common practice for life insurance companies to actually discount their premium rates as you purchase a higher benefit face amount.
This structure allows individuals to potentially get more insurance for close to the same price of a lower benefit amount. For example, let’s say a $200,000 (falls within the $100k-249k rate band) death benefit costs $190 per month. Bumping the policy to the next rate band ($250k-499k) will result in a lower per-thousand rate.
A $250k death benefit, in this case, would only cost $195 per month or an additional $5 per month in exchange for an additional $50,000 in total benefits. This lets you get more insurance per dollar.
3. Shop around
Life insurance policies could vary greatly from one insurer to the next. It’s recommended to get multiple quotes and compare them so you can weigh your options and land the perfect policy for your needs.
Before you look around, make sure you have a solid understanding of the different types of life insurance (which I’ve shared below) so you can ensure you’re getting the right policy for your situation.
Do your due diligence and don’t get something just because a family member or a friend recommended it. It should fit your individual needs.
4. Pay Annually
Most companies give discounts for annual premium payments. On average, the discounts range between 2% to 8% versus monthly payments. If your budget allows it, go for annual payments to save a bit more on premiums.
5. Get Your Health Class Reconsidered
Sometimes, a policyholder’s health improves enough that it’s considerably better than when they initially purchased the policy. For example, someone who used to be obese and had high blood pressure when they signed up for insurance is now of normal weight and health.
After years of implementing a healthier lifestyle through exercise and diet, they could now qualify for a better health class and get assessed with lower premiums. Most insurers allow policyholders to request a reconsideration of their health class if it’s significant enough and they can show proof of improved health.
6. Take the Medical Exam
There are some policies that allow you to skip the medical exam completely. These are called Guaranteed Issue or Guaranteed Acceptance Life Insurance or simply No Exam Life Insurance. But while it sounds convenient, it only features a small benefit payout (usually less than $50,000) and comes with relatively high premiums.
This is to offset the increased risk that the insurance company is taking to guarantee a payout to someone considered uninsurable in most cases. That’s why most policyholders should only think of signing up for No Exam insurance as a last resort and aren’t able to get coverage elsewhere.
7. Work with an Independent Agent
Life insurance is a pretty big commitment. You're basically purchasing financial protection for your loved ones should the unfortunate event happen. That being said, it's crucial that you get a policy that's tailor-fit for your needs so you'll have the peace of mind of knowing your family will be taken care of. An independent life insurance agent can help you with the following:
- Allows you to choose from a wide variety of options based on your preferences
- Helps you shop a policy from the right insurers for you needs
- Creates a customized policy that fits your needs and budget
- Helps you do the legwork from start to finish, saving you tons of time and effort
- Can assist you with any questions about your policy and help you connect with the insurance company for any follow-up requests or needs.
Types of Life Insurance
Now that you have some solid tips to ensure you're getting a great deal on a policy, it's time for a quick rundown of the different types of life insurance to help you with your decision.
Term Life Insurance
It’s a type of life insurance that pays a death benefit to your beneficiaries if you die within the agreed-upon term of coverage. It’s the simplest and most affordable type of life insurance available. It's a popular choice because of its excellent price to value ratio and straightforward approach. It is the right type of life insurance for by far the majority of people.
Permanent Life Insurance
It’s a type of life insurance that provides coverage for your entire life and includes an investment component, or more commonly known as the “cash value”. It can grow at a guaranteed rate or you may invest it within an index or sub-account (it depends on the type of permanent life policy you get. More on this below).
The cash account can be used by the policyholder for a number of ways. They can take a loan against it, withdraw a portion, or leave it untouched for potential cash dividends on some policies. Also, once the cash value has grown significantly, you can utilize it to pay for the premiums remaining on your policy.
Because of this cash component, permanent life is much more expensive than term.
Universal Life Insurance
It’s a type of permanent life insurance that features more flexibility for paying your premiums. The cash value can be used to adjust the amount of premium you pay annually (note: you’ll still need to pay the minimum policy premium).
If you're looking for a policy that lasts a lifetime and want the ability to adjust premiums using the cash value (and the ability to borrow from it), then Universal life is a good choice.
Variable Life Insurance (VUL)
It’s a type of permanent life insurance policy that features the same flexible payment options of Universal Life and its ability to adjust the death benefit. Where they differ is how the cash value earns money.
VUL invests the cash value in “sub-accounts”, similar to how mutual funds operate. These sub-accounts are invested in the stock market which means its performance will determine the gains or losses of the cash value. On the other hand, Universal Life Insurance earns money from the interest paid on the cash value.
Guaranteed Issue (No Exam) Life Insurance
This is a type of permanent life insurance that will not require you to take the medical exam and promises instant coverage. But, since there’s no medical underwriting involved, premiums are much higher and benefit amounts are far less than what you would get from other types of policies.
Final Expense Insurance
Also known as funeral or burial insurance. It’s typically purchased by older individuals looking to cover end-of-life expenses.
Factors that Affect Life Insurance Premiums
How exactly do insurance companies assess your premiums? The following are the top factors that they consider when underwriting your application.
- Gender – Women typically pay a lower premium since research shows that they live longer than men on average.
- Age – The shorter life expectancy raises your risk level significantly which is why premiums get higher with age.
- Your Health – The healthier you are, the less risk associated which results in better premium rates. Individuals will be classified according to a health class guideline.
- Coverage Term and Amount – How much death benefit lump sum and how long you’ll be covered for also determine your premium rates. The larger the death benefit and the longer-term policy, the more expensive the premiums will be.
- Height and Weight – Underwriters utilize a table for determining a person’s Body Mass Index (BMI). You’d want to be classified with a normal BMI if you want better rates.
- The State You Live In – Different states have different standards of living and this is considered by the insurance company.
- Lifestyle – The underwriter will ask if you participate in any form of extreme hobbies or part times (skydiving, race car driving, and other similar activities) as these significantly raise your risk level.
- Smoking – Due to the potential diseases and health issues that may arise from smoking, people who smoke are always assessed with a more expensive premium.
How much your life insurance will cost will depend on your own unique needs and underwriting results. Make sure to employ some of the tips mentioned here to get a great deal when purchasing a life insurance policy. Good luck!