Life insurance isn’t the most riveting topic. It isn’t something you’re going to bring up at a dinner party or chat about when you’re out with friends. However, it’s one of the more important components of personal finance. And the more you know about how life insurance premiums are calculated, the less likely it is that you’ll overpay.
Try These Money-Saving Tips
Life insurance is a product. Like any product in a free market system, prices are set by the company. But unlike most products, life insurance prices are highly dependent on the customer. If you’re considered a low-risk individual, you’ll face lower monthly premiums. If you’re evaluated as a high-risk person, you’ll pay significantly more.
As you think about investing in life insurance, here are some money-saving tips you can use to spend less and obtain more coverage.
1. Stay Healthy
Any life insurance underwriting process will involve an extensive health records check. You’ll also likely have to conduct some sort of physical exam (at least with high-dollar policies). So if you want to qualify for a low premium, you should commit to living a healthy lifestyle.
Don’t smoke, lose weight, and exercise regularly. Being in better shape equals a more favorable rate class, which can lower your premiums by hundreds of dollars per year.
2. Avoid Risky Lifestyle Factors
Do you have a risky job? Whether it’s performing steelwork on skyscrapers or working in coal mines, risky occupations typically command higher premiums.
“In the same way a risky job can increase premiums, so can a risky lifestyle,” InMyArea points out. “What kind of hobbies and leisure activities do you actively participate in? Mountain biking, scuba diving or anything that might qualify you for the X Games will increase your premiums. Do you have a lot of speeding tickets? Insurance companies will even look at how you drive.”
Avoid risky lifestyle factors and try to keep a low profile. It could save you a considerable amount of money.
3. Opt for Term Life Insurance
Don’t get sucked into a whole life insurance policy, return of premium policy, or any sort of life insurance product that doubles as an investment. Stick with simple term life insurance and you’ll almost always come out ahead.
Term life insurance is the cheapest option. If you want an investment, compare the cost between the whole life policy and term life policy and invest the difference into a mutual fund or 401(k). These other policies are nothing more than forced savings plans with low interest rates.
4. Purchase While You’re Young
The time to buy life insurance is when you’re young. If you can get insurance before you turn 35, you’ll see a significantly lower rate. (Even lower if you purchase a policy when you’re in your 20s.)
5. Shop Around
Always shop around and get quotes from multiple insurance companies. You may find it easiest to work with a broker who isn’t tied to one agency. This will give you the ability to compare quotes and find the best rate across the entire insurance marketplace.
6. Embrace the Medical Exam
Nobody likes getting poked with a needle and having to answer personal questions about their health history, but the medical exam is an integral part of getting a low rate on your life insurance policy. Always take the medical exam, even if you’re told it’s optional. Refusing it will lead to a significantly higher premium.
7. Buy in Bulk
It’s much cheaper to buy all of your insurance at once, as opposed to purchasing one policy now and then adding to it in a couple of years.
As you scale up, the variable cost goes down. For example, it’s significantly cheaper to purchase one $500k policy than two $250k policies.
Don’t Ignore Life Insurance
Life insurance is designed to protect and provide for those you leave behind in the unfortunate event of your untimely death. So while not everyone needs life insurance, most people do. If you have young children and/or a spouse who depends on your income, life insurance is a must. It’ll help pay off debt and/or provide a solid income or cushion for the future. Now is your chance to shop around and purchase a policy.