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Life insurance is one of those expenses nobody really wants to pay. But going without life insurance is downright irresponsible, especially if you have dependents. You may not want to pay for premiums, but since you really must, the next best course of action is to follow strategies to save money on life insurance.
Here are the strategies that can help:
Go with Term Life Insurance Instead of Cash Value Life Insurance
This is the single biggest strategy to save money on life insurance. Term insurance isn’t just less expensive than cash value life insurance, but much less expensive. A $500 per month premium on a cash value life insurance policy can be just $50 on an equivalent amount of term life insurance.
That doesn’t just make your insurance premium lower. Just as important, it also allows you to buy more insurance. For example, while you may not be able to afford the monthly premium on a $250,000 whole life policy, you can instead purchase a $500,000 term policy, and still save substantially on the monthly premiums.
This can be especially important if you’re at a time of maximum insurance need in life, like when you have a young family. At that point, you’ll need a lot of coverage, but there may not be much room in the budget for life insurance. Term insurance is the perfect solution to that dilemma.
Shop, Shop, Shop!
Never assume all life insurance companies charge roughly the same premiums for the same amount of coverage. There can be significant differences from one company to another. For example, a company that offers a dozen different insurance types – including life insurance – may charge higher premiums than another company that only does life insurance.
But it’s even more important when it comes to health conditions. Not all companies view health conditions in the same way. One company may charge you 50% more for mild hypertension, while another may increase the base rate by only 20%.
Anytime you have a health condition, you should work with companies that specialize in that condition. Your best bet will be to work with a broker, who works with many of the top life insurance companies on the market, and can set you up with the best one for your condition.
Apply Early in Life
There are many different factors that go into calculating life insurance premiums. Examples include health conditions, family health history, smoker versus non-smoker, occupation, and male or female (rates are typically lower for women). But perhaps the most consistent life insurance premium factor is age.
The older you are, the higher your premiums will be. Age is a risk factor, because the older you are when you take a policy, the more likely the insurance company will be to pay a claim on the policy. And the difference gets bigger as you get older.
As an example a generic table of life insurance shows the following premiums for a 20-year, $500,000 term policy for a non-smoker, listed by age:
- 25 years old, $22.83 per month
- 30 years old, $23.38 per month
- 35 years old, $26.11 per month
- 40 years old, $35.00 per month
- 45 years old, $57.11 per month
- 50 years old, $89.79 per month
- 55 years old, $143.48 per month
- 60 years old, $244.08 per month
- 65 years old, $443.17 per month
Even though this list is generic, the price escalation shown is typical of the industry. Notice that premium rates increase very slowly between 25 and 35. But at 40, the increase is more substantial. And it grows with each five-year bracket.
By buying your life insurance when you’re 30 years old, you’ll pay about one-third less than you will by waiting until you’re 40.
Improve Your Health
Health conditions can have an even more dramatic effect on premiums than age. You can save a substantial amount on premiums by being in good health.
If you’re a smoker, the first best strategy is to quit.
Life insurance premiums are 2 to 3 times higher for smokers than for non-smokers. If you do smoke, enter a smoking cessation program. Most life insurance companies will give you an improved premium rate if you can be smoke-free for at least two years.
Also make sure you maintain proper body weight. The closer you are to the ideal in the weight/height relationship, the lower your premiums will be.
And if you do have existing health conditions, like hypertension, make sure you’re sticking with an ongoing treatment regimen. Controlled hypertension is much less an issue than uncontrolled.
Don’t Over-Insure Yourself
This is an almost counterintuitive strategy, because the vast majority of people are underinsured. But it can also be possible to be over-insured, particularly if you’re buying your coverage from a pushy salesperson.
The rule of thumb is to have life insurance equal to 10 times your annual income. That’s a good starting point, but you should subtract other death benefits from that figure.
- Financial assets you have, like savings, investment accounts, and retirement accounts.
- Any income your family will continue to receive after your death.
- Social Security benefits for children.
- Life insurance covers you have through your employer.
After analyzing that information, you may find you need much less coverage than you think. And that will translate into lower premiums.
Use several of these strategies, and you’ll be surprised how easy it is to save money on life insurance.