Top Ten Tips to Save on Life Insurance

Looking to save money on your life insurance? If you are willing to do a bit of work and consider alternatives in your search, you could save yourself a lot of money.

The most important thing, first and foremost, is to shop around. There are hundreds of insurance companies offering a wide variety of plans and prices. Different companies could have different claim experiences and therefore have very different rates. You could save big bucks, just by doing some comparison-shopping.

What else can you do? You have many options. Here are 10 more ways you can save on life insurance:

  1. Consider term insurance over whole or universal life.

    Term insurance is insurance and insurance only. Unlike whole life policies that have a savings component, you just get life insurance. As a result, you can actually save money on premiums with term insurance. In fact, according to one insurance association, the cost of a universal or whole life policy could be 8 or 9 times more than for term insurance with the same death benefit!

    Having said that, if whole life is your preferred policy, there are still ways to save some money and get the insurance that you want. A big part of the costs associated with whole life insurance are administration fees. If you are willing to check around, you may be able to find companies that sell “no load” or “low load” policies. As always, check any fine print when buying these kinds of products, to ensure there are no hidden charges and that you are getting exactly what you expect.

    Do keep in mind that if you choose whole life, it doesn't really give you the full benefit's of a savings vehicle. Any partial withdrawals or loans will reduce your death benefit. Also, if you partially withdraw or take out a loan against your cash value, and the cash value exceeds the premiums you have paid into the policy, you will be hit with a tax bill. Finally, every year you own the policy, more of your premium money goes to pay for the cost of insuring you and less of it goes toward the cash value. Why? Because your risk of death increases and the cost of your insurance component therefore increases.
  2. Look for no-commission policies if possible

    What is a “no-load” insurance policy? Well, first of all, it's really more accurately a “low-load” life insurance policy. Such policies have fewer expenses built into them, such as agent commissions and fees for marketing. This can mean lower premiums to you.

    How can you get a no-load policy? You need to buy from a financial advisor who will charge a “flat fee” rather than collect a commission. The flat fee will normally be lower than the built-in cost of commission.

    You can also buy no-load policies direct from an insurance company. If the company is selling without an agent, there is less cost to them and potential savings to you. More and more insurers are selling directly via the Internet. It's worth checking out.
  3. Avoid a guaranteed issue policy if you are young or healthy

    “Guaranteed issue” term life insurance policies require no medical exam and are sold to anyone who comes along. Youve likely seen commercials for “Guaranteed Life” or other such policies. Guaranteed issue policies are riskier for the insurer than policies that require medical exams and are thus more expensive than regular term insurance policies. While these policies can be a great way for people who have medical problems to obtain some life insurance, if you're healthy, you'll get better rates by taking the tests and qualifying.

    Theres another reason not to take a guaranteed life insurance policy. With guaranteed life insurance, your death benefit is usually low. At the same time, your premiums are high because of the risk factor. As a result, you could end up paying more in premiums in just a few years than your family will receive in death benefit's.
  4. Shop online!

    While online services may not automatically give you the best price, they can still be a useful source of information about prices overall. You may also find less expensive policies available, from companies who only sell direct and therefore have lower fees. However, the quote you get online will only be as useful as the personal information you provide. Provide the most accurate and complete information possible. For comparison, you should consider speaking with a local insurance broker or other insurance professional to compare quotes and ask additional questions if you have them.
  5. Save money by improving your health

    Any kind of health problem can hurt your chances of buying life insurance. However, conditions like high blood pressure, diabetes and heart disease are among the ones that can make life insurance companies reluctant to sell you a policy at all.

    The better your health, the less risk you pose to the insurance company. It's as simple as that. For this, you'll have more choice of insurer and likely lower premiums too.

    If you are a smoker, you will pay more. Research shows smokers pay nearly three times the premium of non-smokers and you can't just quit the day before you apply. Most companies will want you to have been smoke-free for at least a year. However, it's not unusual for a company to require as little as 2 years smoke-free or as many as 5 years, in order to qualify for non-smoker rates.

    Here's a bit more bad news: If you smoke marijuana, pipes or cigars, you still must admit to being a smoker on the policy application, although insurers don't generally differentiate between different types of smoke inhalation. So, no matter what you smoke, you will be considered a smoker. Marijuana users must also disclose their drug use.

    So, your first goal should be to give up smoking, but that's not the end of the road to good health. Some companies are now classifying as many as 5 different categories of non-smoker, based on the other medical conditions that you might have.

    Think you are out of the woods because you chew tobacco rather than inhale it? Insurance companies use urine tests to check for the presence of nicotine. If you chew tobacco, you might just end up with smoker rates on your life insurance policy.

    If you're healthy but somewhat overweight, this could also impact your ability to buy life insurance. Generally, the heavier you are, the more you'll pay, if the company is willing to insure you. Losing weight is the right thing to do; however, you'll have to lose your weight safely and slowly! Rapid weight lose is associated with many serious health conditions.

    If you have a pre-existing medical condition that could lead to higher rates, take action now. By showing your insurer a history of improving your health, taking your medications regularly and acting responsibly about your health, you'll probably get yourself lower life insurance premiums than you otherwise would have.
  6. Buy only the insurance that you need

    With life insurance, if you buy too much, you'll pay too much. If you buy too little, you could leave your family with a financial problem. Whats the right balance? It's a basic formula:

    • short-term needs of your family long-term needs of your family the familys resources = how much life insurance you need

    Short-term needs would be for such things as funeral costs, debt repayment, immediate income replacement (six months to a year), and potential childcare to help your spouse continue or return to work. Long-term needs would include your children's college education or long-term income replacement for a spouse who will not be returning to work (especially if you don't have a pension).

    Experts advise you do an analysis at least once every three years or whenever you have a major life change. For example, if you have a new baby, you have to recalculate long-term college education needs and short-term child-care costs. If you own a home, a mortgage is likely your biggest financial burden and it should be paid off in the case of your death. Because your mortgage balance decreases over time, it's important to review the actual amount of coverage you need on a regular basis.
  7. Consider a rider on your whole life policy, rather than a new policy

    Do you already have a whole or universal life policy? Well, just because your needs change doesn't mean you should run out and buy a new whole life policy. A rider may be the answer to your problem. A rider amends an insurance policy to expand your coverage, without sacrificing any cash value you may already have.

    Still, be sure to shop around. If you're still in good health, you might be able to get a better deal by buying additional term life insurance to supplement your original whole life one.
  8. Buy life insurance as soon as the need exists

    The younger you are when you buy life insurance, the lower your premiums will be. In general, as you age, the cost of the same amount of life insurance will get higher. However, many term policies give you the option to renew your coverage at the end of the term, without undergoing another medical exam. This can be to your advantage! You also can lock in low premiums by asking for a "level premium" policy, which means for a specific time period, your premium rate stays the same. In some cases, you can lock in a rate for as much as 20 years. However, after that term expires, your rates will increase.

    When does the need exist for life insurance? As soon as you have dependents, which usually means a spouse or children, but could also be elderly parents. If you don't have any dependents, you probably don't need life insurance.
  9. Check your credit report before you apply

    Just as you should check your credit rating before applying for a loan, you should have a look at your credit report before purchasing a life insurance policy. Why? Well, your credit rating could affect how much premium you pay or even whether you can qualify for coverage.

    Now, how would credit affect insurance? The issue for the insurer is risk, as always. Insurance companies will be concerned you would let the policy lapse due to non-payment of premiums. If this happens in the first few years a life insurance policy is in effect, the insurer stands to lose a lot of money because of the high up-front commissions they pay to agents.
  10. Fractional premiums

    Can you save money by how you choose to pay your premiums? You sure can. Some insurers charge you less if you pay annually and more if you pay monthly. In general, the fewer payments you make over the course of the year (which are called fractional premiums), the less you'll pay overall. Whats another strategy to save money? Some insurers will give you a break in costs if they can deduct the premiums directly from your checking account.

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