How to Save Money on Life Insurance
There are ways to save money when buying life insurance, but they don’t always entail paying a lower premium immediately. As your top priority, look for a policy that meets your needs. Buying the wrong benefits for a low premium is a waste, not a saving. Beyond that, here are some ways to maximize your life insurance dollars.
Before you buy
Once you’ve determined what type of life insurance product to buy:
1. Focus on financially sound companies. Dozens of companies sell life insurance. Limit yourself to companies with high ratings from two or more independent rating agencies. A low premium from a shaky company isn’t a good buy.
2. Shop around to get a sense of the premium you’re likely to pay. Quote services, like this one, on the Internet will serve this purpose. As part of this research, determine which rate class you’ll fit into. Most companies that sell individual life insurance have several different price classes - usually called “preferred (non-tobacco),” “standard (non-tobacco),” “preferred (tobacco),” and “standard (tobacco).” A small percentage of people have health conditions or histories that disqualify them for even “standard” rates. Many in this group will be offered insurance at “impaired risk” or “nonstandard” rates.
3. Take care of yourself. Find out into which rate class you’ll be grouped and, if necessary, consider making some lifestyle changes - don’t smoke, maintain a healthy weight and exercise regularly - to qualify for a more favorable rate class.
When you're ready to buy:
1. Shop around to get a good rate. Life insurance is a very competitive business, and you’ll find differences of hundreds of dollars (for annual premiums) even among financially strong companies for essentially the same policy.
2. Consider the net cost index. How can you compare two policies, one with premiums that start lower than the other but later are higher than the other? Or one with low premiums and a low cash value, the other with higher premiums and a higher cash value? Use a net cost index—a standard method for collapsing these variables into one number. The lower the number, the better, but ignore small differences (since the indexes are approximations based on assumptions, small differences might not signal true differences in values). The agent or broker with whom you’re dealing, or the company from which you’re considering buying a policy, will provide these index numbers.
3. Be aware of premium discounts for particular amounts of insurance. Most companies offer rate discounts for specified insurance amounts. For example, you might actually pay a smaller premium for $250,000 of life insurance than for $200,000, or for $500,000 of life insurance than for $450,000, because a discount “kicks in” at the higher insurance amount.
4. Beware of “fractional premiums”. Typically, you can pay your life insurance premium once a year, once every half-year, once a quarter, or once a month. Although paying quarterly or monthly might seem to be easier to fit into your budget, some companies levy high charges for paying premiums frequently. Others levy quite small charges to do this. If a company levies high charges for paying more frequently, try budgeting so that you can pay your premium only once or twice a year.
5. If you’re buying a term policy, look for renewal guarantees. A renewal guarantee gives you the right to start a new term after the current one ends, paying a higher premium based on your current age, but without requiring you to undergo a new health exam or submit any other “evidence of insurability.” Without the guarantee, you’d have to shop for life insurance all over again, and if your health has deteriorated, you might have to pay more or not get it at all.