Believe me! I was unfortunately doing the latter of those two options for a number of years ( … more on that story below …). But eventually I wised up, did my research, and figured out how to get exactly what I needed for the right price.
Now I’m much happier and secure knowing that my family is fully taken care of without having to spend a small fortune to do so.
Here are 14 simple steps you can take to avoid the same trouble I went through and get the best deal on life insurance possible!
1- Just buy term. Don’t listen to pitches about this being a “great financial opportunity”.
One of the first things you’ll find out when you start shopping around for life insurance is that there is (of course) not just one type. There are dozens of variations (if not more); each with their own unique features and benefits.
Some of the more popular types you’ll hear are:
- Whole Life
- No Exam
(You can learn more about each of those types here.)
As you can probably guess, each one comes with different price tag. At first when you’re just getting started with wrapping your head around which one is which, it can be really difficult to tell which one is the better deal.
After going around and round with quotes over the years, here’s what I can tell you: All you really need is term life insurance – the least expensive version of them all.
When I was first shopping around, I made the mistake of listening to the advice of the life insurance salesman. He steered us into a very expensive life insurance plan that was sold to me as a “great investment opportunity”.
That was a mistake … Eventually I crunched the numbers and found out that if I had just invested the difference between the higher premium plan and the cheaper plan, I’d be far better off.
Yes, it was a “great financial opportunity” … for the Life Insurance salesman! Not me!
Eventually I switched to a cheaper plan and started investing the difference in cost into my tax-sheltered retirement accounts instead. Now I know the money is in a much better place being put to work the way I want it to.
If that’s not enough, here’s another fund little tid-bit: When you have a cash-value life insurance plan (such as whole life, variable, or universal), when you die, the first place your benefits comes from is from the value of your account rather than from the benefit. Basically, you’re paying yourself when you die. And again, you could do the same thing but far more efficiently if you were just to save your own money on your own terms in a retirement account.
In summary: Buy life insurance for what it is … insurance. It’s not an investment. Keep your investments separate. Buy term.
2- Buy the longest term policy you can.
Okay, so you’re ready to take my advice that buying a term policy is the best deal when it comes to getting life insurance.
That’s great. The next step is to get the longest term policy you can possibly get. Hopefully for at last 30 years.
Here’s why: Life insurance premiums go up as you get older. According to the website Policy Genius, “premiums increase by an average of 8-10% for every year you put off being covered”.
Naturally as we age, our life expediencies decrease while the likelihood that health issues will develop greatly increases. That means more chances that the life insurance company will have to pay out benefits, and so they charge more.
Remember too: Each time your contract ends, you generally have to pass a medical exam. If the exam turns something up, then the insurance company can either refuse to cover you or charge you outrageous new rates.
The way around this is simple: Buy the longest term policy you can while you’re still young and healthy.
Doing this will help in a few areas:
- When you’re young (in your 20’s or even 30’s), you’re generally at your healthiest. This will help position you for the cheapest rate available.
- You’ll lock into one set rate that will never increase throughout the life of the contract.
- You’ll only have to pass one medical exam and take another one during this time.
Buying longer policies will also help ensure that the death benefit is there when you need it for all the right reasons too. For example, if you did pass away, major expenses like your mortgage and raising the kids would be covered. As we get older and those things tend to fall away, the importance of the policy will also decrease too.
3- Don’t smoke.
Plain and simple: Smokers pay more for life insurance. A LOT more. According to Business Insider, they pay 235% above what non-smokers pay.
No surprise here – smoking is terrible for your health! Therefore, a company that is taking a financial gamble on your health and life is going to charge you more for it.
So do your health and budget a big favor – get the best deal possible on life insurance by quitting right away.
4- Take care of yourself.
Smoking isn’t the only thing that we as humans do to damage ourselves. Things like eating terrible, drinking, drugs, not exercising, and stress can all have an effect on our well-being as well as our life expectancy.
So again: Treat yourself right! Get in shape and clean-up your lifestyle. This will lead to getting a better rate as you shop around for quotes. Many life insurance companies will now offer discounts and incentives for those people who participate in wellness programs and try to make a positive difference in their lives.
That’s not too bad of a deal – getting a discount for living better!
5- If you’re healthy, don’t buy a guaranteed issue policy.
Earlier I mentioned a version of a life insurance policy called “no exam” (also sometimes called “guaranteed issue”). These types of policies are for people who either can’t pass a life insurance medical exam or don’t want to for whatever reason.
The good news for those people is that there are some companies that will still provide you with coverage. But here’s the bad news: It won’t be cheap! Sometimes the rates are 2-3x times higher what you could find normally with a regular term policy.
So here’s my advice: If you’re young and healthy, skip the no-exam policy. Why pay more money out of your budget than you need to? Chances are good that you’ll ace the medical exam and qualify for the lower rate.
6- Only buy as much insurance coverage as you need.
When you’re looking to buy life insurance, another big question that will often pop-up is: How much do I need exactly?
For most people, the general rule of thumb will be to buy a policy that is about 10-12 times their annual gross salary. So if you make $60,000 per year, shoot for somewhere between $700,000 and $750,000.
Of course, there is really no cap. You can buy as much (or as little) as you can afford, or whatever an insurance company will insure you for. The 12-times rule of thumb just helps to ensure that your loved ones will be covered for a very significant amount of time after your passing.
7- Shop online to get generic costs.
In this day and age of the internet, the best place to start shopping and getting an idea of pricing will be to first look online.
There are dozens of reputable websites where you can enter a few key pieces of information about yourself and get dozens of prices from top-rated companies. Even though these won’t be the final prices, this will give you a very good idea of what approximately what your rate should be and what you can expect to pay.
Just remember NOT to give out any personal information right away such as your Social Security number or credit information.
8- Shop direct to get better rates.
Once you’ve found a few companies whose prices seem good and have a strong reputation, you should be ready to go to them directly and see what kind of rates they give you.
When you do this, you might be surprised at how much the life insurance prices fluctuate from when you did your generic online search. This would be because the life insurance company will ask you more direct and personal questions about your lifestyle to get the most well-suited rate. It more than likely will also be cheaper because now you’re cutting out the middle-man.
9- Skip add-on life insurance policies to your work policy.
Is one of your benefits at work a small life insurance policy?
Most employers these days do this as a standard benefit. However the payout isn’t very much. Usually its about the equivalent to one year’s salary.
This is another popular place life insurance companies like to try to up-sell you. They offer to let you increase your benefit at an additional cost.
Based on the numbers I’ve seen over the years, I’d say to be careful. In my experience, I was always able to find a quote from a private company for a lot cheaper than what the add-on would have been. Of course, do the math and compare to know for sure.
10- Get riders for the kids.
If you’ve got children, remember to purchase riders for them as well. Usually its just a few extra bucks in addition to your policy. The value usually covers the price of entire funeral; something they be as much as $20,000 or more.
11- Never-ever lie on a life insurance application.
Though this may sound like common sense, I have to point out: Never, ever misrepresent yourself on a life insurance application. Doing so can null-and-void your contact with the provider, and that means NO payments to your loved ones.
The reason I bring this is up is because some people think that its okay to tell little “white lies” to help them get better rates. For example, not disclosing you were ever a smoker will get you a cheaper price. However, don’t be tempted! If the insurance company later finds out that you passed away and one of these known health issues wasn’t revealed, then they will not make the death benefits payment.
In other words: Don’t mess around. Fill out the application with your honest and accurate information.
12- Avoid fractional premiums.
One way life insurance companies try to make it easier for you to buy their products is by splitting up the annual payments into smaller monthly payments. While there’s nothing really inherently wrong with this, make no mistake – you will end up paying a higher total price if you do this. Therefore, when buying your life insurance policy, to save a little money you’ll want to ask if you can get a discount if you pay your premiums annually instead. Just like with your auto insurance, its highly likely that they will give you a reduced price.
13- Review your policy annually.
As with all your insurance policies, be sure to review them every year. This is so that you can make sure everything is still accurate and up to date.
Usually where this is the most important is in the amount. As we move along in our professional careers and our lifestyles change, the amount of coverage may also need to increase. Of course, this can also be for simpler things too such as a change of address, martial status, beneficiaries, etc.
14- Let the plan expire when you no longer need it.
At some point in your life, you may no longer need your insurance policy. This might be when you’re older, possibly retired, the house is paid off, the kids have graduated college, and the rest of your finances are all in order. It would likely cost more to have the plan at this point then the death benefit would pay out. When you get there, its okay to let your plan expire.
Featured image courtesy of Flickr