1. Calculate Your Needs Properly
Before you buy a policy, you need to calculate your life insurance needs. Standard formulas that insist you buy coverage eight or more times your annual income are inadequate, and online calculators tend to overestimate your needs. A simple strategy to use is to add up the following four categories of need and then assess whether you want additional coverage or other policies. The four categories of need include:
- Funeral expenses (average burial expenses run between $10,000 – $20,000)
- Mortgage and debts (include cars, students loans, and other debts your family would be responsible for)
- Education expenses (factor in rising college tuition costs, which average about five percent or more every year)
- Replacing income (many insurance agents state you won't need 100 percent of your income replaced when the above categories are paid for – something to keep in mind). You may want to increase/decrease your final figure if you have family members with health issues or members who earn a considerable salary.
2. Rounding Up
Once you have your life insurance number in mind, consider rounding up. Rates often drop when you hit certain levels/thresholds of coverage (think $250,000, $500,000, and $1,000,000). For example, buying a $240,000 insurance policy will cost more money than purchasing a $250,000 policy in most cases.
3. Shop Around
Now that you have a figure in mind, shop around. Online insurance search tools can help you compare quotes from different insurers, but keep in mind that no insurance search tool includes all insurance companies. Don't discount local insurers either, as online tools sometimes exaggerate pricing. Also, use your lowest online quote as a reference point when you shop around.
4. Consider Health Improvements
If you smoke, drink or are overweight, get ready to pay more. Obesity alone is ranked the fourth most expensive medical condition for life insurance shoppers. Remember, life insurance companies charge higher premiums because they take into consideration what illnesses can eventually come with obesity – heart disease, diabetes and hypertension. Smokers, who also have higher rates, can save money by quitting. Many insurance companies will offer a "non-nicotine" rate after you have been nicotine-free for six months to five years.
5. Ask for a Reevaluation
If you already have life insurance and you pay a hefty premium because of a specific health condition, you might be able to save money by asking for a health reevaluation. If your health has improved, you have sustained better health for at least a year, or you can show your insurer ways you are improving your health, you may have your rate lowered.
6. Pay Bills Annually
After you have found the life insurance premium right for you, consider paying the bill annually instead of monthly. Many insurers charge for monthly billing. Also, you should make the fewest amount of payments over the course of the year (these are known as fractional premiums). Paying your bill annually and having it transferred directly out of your checking account are two great ways to save money.
7. Choose Term over Whole Life
There are two classes of life insurance: whole life, or permanent, which offers a lifetime of coverage and allows you to pull money from the policy, or term insurance. Term insurance will cover you for a specific period, and you cannot pull money from the policy. If you are specifically looking for money-saving strategies, then buy term, as it is much cheaper. Remember, if you do decide to buy term insurance, the longer the period of time you purchase for, the less you will spend. For example, you will spend less money buying a 20-year term policy than a 2 or 5-year policy. If you may want whole life insurance at some point, consider buying a convertible policy that will let you shift from term to whole.
8. Healthy? Stay Away from Guaranteed Policies
You may have seen the ads on television…"guaranteed" life insurance that doesn't ask for a medical examination. These policies may be an option for those who have medical conditions, but they generally cost a lot more money. If you are healthy, do not purchase a "guaranteed" policy.
9. Check for Hidden Fees and Add-Ons
Did you know that some insurers might charge extra fees if you pay by the month? Some also throw in add-ons, or riders, along with hidden fees for coverage you don't need. Here are common riders or hidden fees that will increase your price:
- Term conversion rider: This rider gives you the option to turn your term policy into a whole life policy.
- Waiver of premium rider: Should you become disabled, this rider waives your premium payments.
- Accidental death benefit: If your death is accidental, the payout will be increased (in most cases, doubled).
- Disability income rider: This rider allows you to receive a specific income amount if you become disabled.