Life insurance is always a very touchy subject, some feel it’s not needed while others argue that it is an important part of your financial plan. Often people are unsure how life insurance fits in their finances, everyone has unique needs and there is no “one product fit all” policy. One of the main reason people avoid life insurance is the cost associated with it, but insurance does not always have to cost you an arm and a leg, here are six tips that can help you reduce the cost of life insurance.
1. Get the right type of life insurance. Life insurance has three attributes; the death benefit, the premium, and a time period over which you’re going to pay the premiums. If you die with $500,000 of life insurance type A or with $500,000 of life insurance type B, they are both going to pay $500,000. In other words, it doesn’t matter what type of insurance you have, they’re all going to pay the same death benefit if you have the same insured amount. And that should highlight that what you need to focus on is the premiums and the time period (assuming you’ve properly established how much life insurance you do need). If you need insurance for a period of time, buy the insurance product which best matches that duration. If you need insurance for a period, look to term insurance, which will be less expensive over the short term. If you intend to keep the insurance forever then look into permanent insurance (i.e. Term to 100) which will be less expensive over the long term (though with higher premiums initially). Note: If you need some term and some permanent, look into a layer cake type of policy where you have one layer of permanent insurance with a topping or second layer of term insurance.
2. Shop around. Brokers don’t noticeably impact rates. If you get a policy from an insurance company with Broker A or Broker B, you’ll get the same rates. Brokers don’t have a secret pipeline to getting you better rates. So the key? Find a broker that shops out more companies. That’s how a broker will benefit you – the more companies they shop, the better the likelihood that you’ll be getting cheaper rates because they’ve shopped a more competitive company.
3. Make sure your term policy has ‘conversion to permanent’ as a policy provision. This won’t save you money upfront but if you own a term policy and become uninsurable or highly rated then the ability to convert to permanent insurance (i.e. Swap your term for a permanent policy) with no medical exam and still get healthy rates could save you a bundle in the long term. The conversion privilege is basically insurance for being able to buy permanent insurance and it’s free with many companies – so go with a company that has it.
4. Pay annually if you can. Monthly premiums are easier to put into a budget for most people, however paying annually can save you almost one month’s premium every year. It’s hard to get that rate of return at the bank!
5. Don’t mix investments and insurance. Corollary A: Make sure all your policies are guaranteed from every aspect. If you’re investing inside a policy or have non-guaranteed provisions then you potentially place your entire policy at risk. And remember that with some non-guaranteed aspects, “0” return or no return is not the full potential downside. Minus 40% return might be the downside. Don’t add risk when you’re trying to manage it.
6. Take your medical exam first thing in the morning. If you are able, don’t have anything to eat or drink prior to the medical exam. This ensures that the underwriter doesn’t have to determine if the indicators in your blood test are the cheerios you had for breakfast or some weird sugar related issue you have all the time. Your blood pressure should also be lower in the morning. All combined that can help get you the lowest insurance premiums possible.
Glenn Cooke is a life insurance broker and president of InsureCan.