How to save on Life Insurance

1. Choose Term insurance

For example Jim and Jane get married and have their first child when Jim is 30.  Being the responsible person that he is Jim decides to get life insurance to provide for his new family in the event that anything should happen to him.  Jim is a college graduate and a fairly successful person.  He estimates that by the time he is 55 years old he will not need life insurance anymore because he will have saved plenty of money to provide for his loved ones in the event of his death.  Jim calculates that if he buys a one million dollar term life policy for 25 years he will spend less money than if he bought a permanent policy with the same coverage.

Permanent life insurance is not for everybody, but it is a good product to buy if you will not ever be able to save enough to provide for your survivors and cover final expenses (funeral, burial, legal costs).  Unfortunately insurance agents make a lot more money by selling permanent insurance than they do from selling term insurance so they have a tendency to sell permanent life insurance to people who would be better suited for term.  Permanent insurance costs five to ten times as much as term and agents get a commission that is five to ten times higher for selling it.

2. Buy a low load policy

Low-load or no-load policies have fewer administrative expenses (marketing, agent commission etc) built into them so they cost less so their providers can sell the policies at lower prices.  If you purchase a variable life insurance policy the reduced expenses will let you build up your cash value quicker.  There are only a few insurance companies that off this product and it is usually purchased through financial advisors who charge flat fees because companies that offer these policies can be hard to find due to their low commissions and minimal marketing spending.  Ameritas and TIAA-CREF are two of the most popular low-load insurance providers, but they may not provide coverage in your state.

3. Buy insurance that requires a medical exam if you are healthy

The most important determinant of a life insurance policies cost after age is health.  If you are in good shape for your age take advantage of your health and purchase life insurance from a provider that investigates the health of all customers before issuing a policy.  Because healthy people are less likely die insurance companies charge them lower premiums in order to win their business.  Conversely if you are not in good health you may want to buy a policy that does not require any medical examination.  These types of policies are called guaranteed policies.

4. Comparison Shop

Different companies offer different prices and coverage options so it makes sense to search for the policy that best fits your budget and needs.  An independent insurance agent can get you a handful of quotes from companies that offer the kind of coverage you need.  If you don’t like dealing with insurance agents (most people don’t) you can always ask friends and family about what policy they bought and how it worked for them.

Before buying insurance check the financial health of a company and learn more about its reputation.  The best source of information on this topic is the AM Best ratings.  The A.M Best Company analyzes rates and insurance companies based on their overall quality and strength.  It gives insurers grades, much like school, A++, A+, A, A-, and so on.  The higher the rating the safer the company is from collapse.  Don’t buy insurance from any insurance company with an A.M. Best policy holder rating of less than “A” unless you have no other choice.

5. Don’t buy more coverage than you need

Financial planners recommend that you take stock of you needs once ever one to three years.  New years day is a good time for this exercise.  While looking at your needs you will want to include the effect of payments you have made to decrease the principle on long term debt like a mortgage.  Also you should re-examine your current life insurance anytime you experience a life changing event like the birth of a child. 

6. Add coverage to a current policy before buying a new one.

If you decide you are underinsured and you are ready to protect your loved ones with additional life insurance first consider getting a rider that will expand your current coverage before looking at taking out another policy.  Adding a rider keeps you from paying any of the fees associated with starting a new policy and insures that your loved ones can easily get their claims paid in the event of your death.

7. Buy life insurance as soon as you need it

Young people can get life insurance at cheaper rates because they are less likely to die.  As you age companies have to charge more for insurance because the risk of your death increases.  Most term policies give you the option to renew your coverage without undergoing a medical exam so if you buy early and then develop a dangerous medical condition your rates will not increase. 

Buying early is smart, but don’t buy too early.  If you have no dependents and can cover final expenses there it is not worth it to start buying insurance you don’t need just to lock in a low premium.

8. Make EFT (electronic funds transfer) payments 

Processing checks via mail takes time and adds cost to any companies overhead.  It also takes up more of your time.  Some companies now charge $5 for payments made via phone or mail so consider having your premiums automatically deducted from a checking account or paid with a credit card every month.

9. Improve your health

Health problems make it harder to buy life insurance at a good price.  Heart disease, diabetes, and high blood pressure are among the most common conditions that cause premiums to go up because they are common causes of death in developed countries.  The best solution to reducing the risk of these dangers is to develop a regular exercise habit and eat healthy foods in reasonable portions.

The most expensive habit to have from a life insurance perspective is smoking.  Not only does it cost money to support it will also drive your premiums up by as much as 100%.  Be advised that you can’t quit smoking for a day and then buy life insurance and expect the insurer to pay out a benefit if you die from lung cancer.  Some insurance companies require that you to have never smoked in your lifetime in order to qualify as a non-smoker, while other companies just require that you be nicotine free for one to five years. 

The key phrase here is nicotine free.  Chewing tobacco, nicorette gum, the patch all supply the body with nicotine and if you are regularly using any of these or any other nicotine product you will not qualify for non-smoker rates.

10. Re-evaluate your life insurance if you health improves

If you have quit smoking or lost more than 50 lbs you will be eligible for reduced health insurance rates.  Ask your current insurance company if you can apply for a reduced rate, or if you currently buy life insurance from a garaunteed provider find out how much you could save by buying insurance through an insurer that requires medical examination before issuing policies.  This is something you will have to take the initiative on because no provider will go out of their way to reduce your premiums.