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Inside this Article
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.
Life Insurance - 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.
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.
Life Insurance - 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.
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