10 ways to save money on life insurance
Just as there are different life insurance plans to meet your needs, there are different ways to save money on life insurance.
Most importantly, comparison shop for life insurance quotes. There are hundreds of insurance companies offering a wide variety of plans and prices. Comparison shopping can save you big bucks. In addition, here are 10 more ways you can save money on your next life insurance purchase.
1. Consider term life insurance
Some financial planners advocate permanent life insurance policies with cash value components because the policies force you to save money. Others recommend you buy term life insurance for the cheaper premium and invest the difference.
But cash value in life insurance should not be considered a traditional investment. Any withdrawals or loans not repaid will reduce your death benefit. Also, if you take a partial withdrawal from the cash value of your policy in an amount greater than your total premiums, the withdrawal in excess of your total premiums is considered taxable income.
Furthermore, the difference in premiums between term vs. permanent life insurance is not just a matter of a few dollars per year. According to the Society of Actuaries, premiums for whole life can be five to 10 times higher than the same amount of level term life, depending on the kind of level term being compared. For example, if you're comparing the premiums of 30-year level term it will be a smaller multiple, while premiums on a 10-year term policy could be a larger multiple.
Every time you renew term life insurance, your premiums will increase. Renewing a short term life insurance policy over and over isn't a wise use of money. Instead, buy a longer term life insurance policy, or buy whole life insurance if you definitely want to leave money to your heirs.
People with a short-term need generally include those who want life insurance to cover a specific debt — like paying off a mortgage.
2. Seek out low-load life insurance policies
"No-load" or "low-load" permanent life insurance policies have fewer expenses built into them, such as agent commissions and fees, than other life insurance policies. For variable life insurance, these lower expenses mean a higher percentage of your premium goes to work for you right away, allowing you to build your cash value faster.
Not many companies sell no-load or low-load policies. No-load policies can be purchased mainly through financial advisors who charge flat fees rather than collecting commissions from insurance companies. Those that sell no-load policies include Ameritas Advisor Services and TIAA-CREF. Also, these policies may not be available in all states.
3. Don't buy a guaranteed issue policy if you're healthy
With some guaranteed issue policies, you could end up paying more in premiums after only a few years than your beneficiaries might ever receive from the death benefit.
"Guaranteed issue" life insurance policies require no medical exam but may ask a few basic medical questions. Guaranteed issue policies are riskier for the insurer and are, therefore, more expensive than fully underwritten insurance policies.
Guaranteed policies are generally purchased by people who have difficulty obtaining life insurance due to medical problems. If you have some medical problems you're still likely to get better life insurance rates by opting for an underwritten policy, for which you take a medical exam.
The high premiums, combined with a low face amount for the death benefit, can make guaranteed issue life insurance a less desirable option. With some of these policies, you could end up paying more in premiums after only a few years than your beneficiaries might ever receive from the death benefit.
4. Research life insurance quotes online first
While not all online life insurance quoting services will give you the rock-bottom price for term life insurance, they can still be a useful source of information about prices. Just remember, the more personal information you give, the more accurate your life insurance quotes will be. Your "lowest quote" should be used as a baseline for shopping around.
5. Improve your health
Health problems make it hard to buy life insurance. High blood pressure, diabetes and heart disease are among those conditions that can make life insurance companies pump up your rate. Here are the most expensive medical conditions for life insurance shoppers.
If you have a pre-existing medical condition that could lead to higher rates, you'll make your underwriters happier and probably get yourself lower life insurance premiums by showing your insurer a history of improving your health.
Then there are rates for smokers and other nicotine users. There's no escaping a high life insurance price, but shopping around is wise. Some insurance companies will consider you a "nonsmoker" only if you've never smoked. Others require you to be "nicotine-free" anywhere from six months to five years to obtain a non-nicotine rate.
If you smoke marijuana, pipes or cigars, but not cigarettes, you still should admit to being a smoker on the policy application.
Insurance companies may request urine or saliva tests to check for the presence of nicotine. If you chew tobacco, you might end up paying smoker rates for your life insurance policy.
Don't bother trying to hide smoking from life insurance companies.
Another major health factor is weight. If you're healthy but somewhat overweight, you will likely be quoted higher rates too.
If you have a pre-existing medical condition that could lead to higher rates, you'll make your underwriters happier and probably get yourself lower life insurance premiums by showing your insurer a history of improving your health, taking your medications regularly and acting responsibly about your health.
6. Buy only what you need
Nailing down a formula for how much life insurance is an imprecise science. You should ask yourself how much money it will take to maintain your family's lifestyle if you were to die. Do you have money earmarked for your children's education?
Here's how to do a needs analysis for life insurance.
Reexamine your policy whenever you have a major life change.
Experts advise that you do an analysis annually or at least once every three years. Also, you should always reexamine your policy whenever you have a major life change. For example, if you have a new baby, you have to recalculate college education needs and child-care costs. If you own a home, a mortgage is likely your biggest financial burden. Because your mortgage balance decreases with each payment, it's important to include those revised figures in your calculations.
7. If you need more life insurance, consider a rider as opposed to a new policy
Just because your needs change doesn't mean you should run out and buy a new life insurance policy. In many cases, a rider adding extra coverage to an in-force whole life insurance policy can let you expand your coverage without sacrificing your built-up cash value. Ask your agent if there's a charge for adding a rider.
8. Buy as life insurance soon as the need exists
An advantage to buying life insurance as soon as possible is that your premiums are lower. As you age, life insurance gets more expensive. Many term policies give you the option to renew your coverage at the end of the term without undergoing another medical exam.
You also can lock in premiums by buying a "level premium" policy, which means for a specific time period, say 5, 10 or 20 years, your premium rate stays the same.
9. Pay your life insurance bill annually
Avoid "fractional premium" charges by paying your bill annually.
Once you've found the best insurance policy for your needs, find out if you can save money by paying annually. Some insurers charge fees for monthly billing.
In general, the fewer payments you make over the course of the year (known as fractional premiums), the less you'll pay overall. Also, some insurers charge less if they can transfer the premium payments directly from your checking account.
10. Ask for a rate reevaluation if your health improves
It's possible to save money even after you've bought life insurance. Just because you've been put in a relatively expensive rate class doesn't mean you're out of luck forever.
If you're paying higher premiums because of a specific health condition, ask your insurance company if you can apply for a rate reconsideration if your health has improved and you've sustained better health for at least a year.
If you've established a history of lowering your blood pressure, cholesterol, or any other controllable rate-increasing factors, many insurance companies will reevaluate your premiums if asked.
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