|
|
|
How can I 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:
- 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. See How do I
choose a life insurance company? for more details.
- Shop around to get a sense of
the premium you’re likely to pay.
Quote services on the Internet may serve this purpose, or you can ask
an agent or broker to get you a premium estimate.
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.
- Look into group insurance.
Consider participating in your employer-sponsored life insurance
program, even if you have to contribute to it financially. Employers
often subsidize their group insurance costs, so it can be less
expensive than individual life insurance. You might obtain coverage up
to a certain level without providing evidence of good health, an
advantage for some people. You’ll probably pay premiums through payroll
deduction, which can be a nice convenience. However, make sure to
compare group and individual rates, as depending on your age and health
status, group insurance may or may not provide a savings. In comparing
group to individual life insurance, remember that if you have over
$50,000 of group life insurance, IRS tables determine how much it costs
to provide the amount over $50,000 and charges you taxable income for
that cost.
- 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
- 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.
- 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.
- 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.
- 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.
- 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 much more or not get it at all.
|
© Insurance Information Institute, Inc. - ALL
RIGHTS RESERVED -
<< How should I choose a life insurance
agent?
|
|
|
|
|
