If people depend on you for financial support, your decision about getting life insurance has already been made. It is now just a matter of doing it most cost-effectively for the coverage you need. Thinking about death can be unsettling or even morbid, but you should be much more afraid of your survivors struggling financially.
Shopping for life insurance and paying the premium, on the other hand, do not have to be scary or off-putting. Consider the following 10 key tips to save on life insurance:
1. The sooner, the better — The earlier in life you identify your needs, and purchase life insurance coverage, the better. The answer should be obvious – no matter what your age, it will never cheaper for you to buy life insurance than it is today. Do it early, lock in the rates and you will save a good chunk of change.
2. Find out what kind of policy fits your situation — There are a lot of different kinds of life insurance, offering a range of various benefits. A “whole life” policy can even act as an investment that accumulates cash value, while “term life” policies accrue no value but offer a straightforward death benefit for a fixed period of time. While the idea of the “investment” policy may be attractive, a less costly term life policy may be more appropriate to your situation.
3. Investigate the renewal procedures — As people get older, their health usually declines, and this can lead to increased premiums or even a status of “non-insurability” if the policy is being purchased for the first time at an advanced age. Before buying a policy (early, as explained in #1), ask about guaranteed renewability at the expiration of the original term period. It will cost you something, but having guaranteed renewability should be worth a few extra premium dollars in the near term as it will save you big money in the future.
4. Group insurance through your employer — If it is available at your company, an employer-sponsored group plan is an one of the best ways to obtain high coverage amounts for a low premiums. In insurance as in everything else, there is strength in numbers.
5. Shop around — There are thousands of life insurance companies in the U.S., and all of them want to sell you a policy (or two). Get at least three or four quotes and let the companies compete for your business. Don’t forget to check out the corporate health of your insurer, too, which you can do by checking on them with such rating firms as A.M. Best, as well as various websites that monitor the industry.
6. Stay (or get) healthy – While you can’t do much about pre-existing conditions, for policies that require a physical examination you want to emphasize your good health (if you have it) or the steps you are taking to improve it (if you don’t). If you are overweight, smoke tobacco, have poor personal hygiene, engage in unhealthy activities (heavy drinking, drug use) or compromise your health in some other way, you will certainly be paying higher premiums than you might otherwise. You should make physical fitness a goal if it isn’t already.
7. Combine policies – The same advice given to home and auto insurance shoppers applies to life insurance buyers, too. If the insurers you are considering have multiple lines, see what kind of multiple policy discount you could get by getting all your policies there. If your present insurer handles other lines, all the better.
8. Crunch the right numbers – To compare different policies, you will need to consider what is called the “net cost index,” which the Insurance Information Institute (www.iii.org) defines as the “standard method” for combining premiums and cash value into a single number. These index numbers and the rationale for their calculation are available from your insurance agent, the company or companies you are considering, and other sources.
9. Keep your eye on the discounts – Don’t forget that many insurance companies will quote lower premiums for specified levels of coverage. For example, the premium may actually be less for $100,000 of term life insurance than for $75,000 as a result of the discount going into effect at the higher amount. All companies have their own ways of setting these amounts and cutoff points, so add this question to your research list without fail.
10. Forgo the fractionals – Generally speaking, you will have a choice of how you will pay your insurance premium. It could be annually, once every six months or quarter, or once a month. While paying monthly or quarterly amounts may seem like a money-saver or a good budgeting device, most every insurer adds a “processing fee” for premium payments made more frequently than once a year. Ask about these "fractional premiums" to see what you may be charged for making payments monthly or quarterly. If the insurer you choose does charge more for paying frequently, try to design your budget to pay just once, or at most twice, per year.
Using your head
Buying life insurance is probably never an enjoyable task for anyone, but it is essential for safeguarding your family's financial future after you pass away. Using the foregoing tips can result in your paying less for your life insurance coverage, and will benefit you to the degree that you do your research and apply what you learn.
As with any purchase, allow yourself sufficient time to consider all the options, all the sources and all the different policy terms. It is never wise to rush any important decision, and life insurance may be one of the most important things you ever buy. Do not hurry, and do use your head, to get the best possible deal – for your wallet, of course, but for your family primarily.
