First off a top priority should be to select a life insurance policy that meets the needs of you and your family. There are many potential opportunities to purchase life insurance at a lower premium, but they don’t always entail paying a lower premium immediately. 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.
Shop around for a good rate.
Life insurance is a very competitive business. You will find differences of hundreds of dollars for annual premiums, even among financially sound companies, for essentially the same policy. Use online quote services, an agent or a broker to get multiple premium estimates.
As part of your 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.
Remember that the best policy is not necessarily the cheapest; you should also consider whether the policy addresses your overall goals.
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 would probably pay premiums through payroll deduction, which is 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.
Maintain a high credit score.
Problems with your credit could result in you paying higher-than-average premiums or being denied coverage altogether. Insurance companies place the credit-challenged in a higher risk class than those with a solid credit history.
Stay healthy—or get healthy.
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.
Look into no-load policies.
A no-load (low-load, no-commission) policy is one with fewer administrative fees than traditional policies. This can result in lower premiums.
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.
Take advantage of premium discounts.
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.
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.
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 is not a good buy.
Options to avoid:
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.
Guaranteed-Issue policies—if you are healthy.
If you have been denied insurance because of increasing age and declining health, a guaranteed-issue policy could be a last-resort option. On the plus side, this type of policy can be obtained without a medical exam. This means that anybody can get coverage, no questions asked.
On the downside, however, the premiums tend to be exorbitantly high and the face value low. If you are healthy, you will get better rates by taking a medical exam, as insurance companies often offer discounts for people in good health.