Providing peace of mind and protecting your most important asset (you!), life insurance is a valuable financial tool for individuals, businesses, and families.
However, managing life insurance’s costs is essential to ensure you get the most coverage for the least amount. Fortunately, some strategies can help you lower the costs of life insurance. Here are a few ways to manage your insurance costs more effectively and efficiently.
Understand how much life insurance you truly need. It’s easy to get emotional about purchasing life insurance, especially with all those videos of sad widows whose spouses left them without enough money to pay the bills. Life insurance can indeed help with the costs of a funeral and other final expenses.
When buying a new insurance policy, increasing your current policy’s face value, or changing the type of policy you have, get an insurance needs assessment from your financial advisor. By asking a few questions and clarifying your goals, you and your advisor can determine the exact amount of coverage your family or business partners would need if you passed away unexpectedly. Avoid overestimating your insurance needs, as buying more coverage significantly bumps your premiums. Striking the right balance between adequate coverage and affordability is critical.
Consider these two examples of life insurance quotes:
- A $500,000 policy could have a premium of $80 per month.
- A $1,000,000 policy may cost $140.00 per month.
As these examples illustrate, the higher the payout, the higher the premium. You can see why it’s a good idea only to purchase as much life insurance as you need and no more.
The healthier you are, the better. Many people need to realize how much of a role their health plays in determining the cost of a life insurance policy. If you have a policy in force based on your former unhealthy lifestyle but have made positive changes to your health, such as losing weight, you should get new quotes. Healthier individuals are often rewarded with lower premiums because they represent a lower risk to insurers. On the other hand, insurance companies tend to penalize people with a history of tobacco use, chronic medical issues, obesity, or dangerous jobs or hobbies.
Benefit tiers may save you cash. Once you and your financial professional have decided how much coverage you need, ask your provider about benefit tiers. Some insurers offer much more attractive premium rates for specific levels of coverage. A $500,000 policy may cost less than a $490,000 policy, making it cost-effective to round up your policy’s face value to the nearest tier.
How long will you need your life insurance policy? If you are considering a term life insurance policy, determine the length of time you will need coverage. For example, if you plan to pay off your home in five years, you may not need a higher-premium 10-year term policy. Generally, the longer the term, the more you’ll pay. Align your policy duration with your financial commitments to optimize cost-effectiveness.
Be on the lookout for hidden fees and high administrative costs. When shopping for the right policy, always pay close attention to hidden fees or other charges. For instance, ensure no additional coverage options (“riders”) are included. Riders usually add to a policy’s cost but are only sometimes things you need. Riders such as the Accidental Death Benefit, Waiver of Premium Rider, Disability Income Rider, Term Conversion Rider, and Accelerated Death Benefit Rider can add unnecessary costs. Ensure you and your advisor thoroughly evaluate each rider’s value and necessity before including them in your policy. There may also be additional administrative fees in the policy price. For instance, some insurers charge extra fees if you pay your premiums monthly rather than annually.
Term insurance is often a good choice. Depending on what you want your life insurance to do, term life insurance is almost always less expensive than permanent life insurance. If you are younger with dependents, having enough coverage to pay off debts and leave a legacy is likely more important to you. Be aware, though, that buying term is sort of like “renting” your insurance. If your term expires and your health has taken a turn for the worse, you may lose coverage. Even if you get renewed, your premiums will likely increase, so you can’t afford them, and your policy lapses. There’s a good case for talking to your agent or advisor about the benefits of whole or universal life policies.
Shop around and save. For many of us, shopping for insurance is as exciting as watching water drip into a bucket. It’s a task most people tend to view as a necessary evil rather than a tool for improving their lives. But, finding the best life insurance policy can do a lot to help you sleep better at night, knowing your loved ones will get help if you pass away suddenly.
Purchasing life insurance is one of the best ways to tell your family how much you love and value them. That doesn’t mean, however, that you must buy the first policy you see or that you shouldn’t try to save money whenever possible. Most insurance companies provide online policy quotes, making it convenient to compare options. You can use a comparison tool, which streamlines the process by presenting all your offers side by side, helping you identify the most cost-effective option. Always compare policies with similar terms and coverage levels to assess accurately and look for the highest-rated carriers with a history of claims payments.
Parting thoughts
Insurance forms the cornerstone of a sound financial plan. But, it can be expensive if you don’t carefully approach the buying process. Lowering the expense of life insurance is achievable with strategic planning and consideration of your specific needs.
By assessing your coverage requirements, improving your health, exploring benefit tiers, adjusting policy length, avoiding hidden fees, opting for term life insurance when appropriate, and comparing quotes, you can secure the coverage you need at a price that makes sense for your budget.
Always remember that life insurance is a valuable investment in your family’s financial future, so it’s worth finding the right balance between coverage and cost. If you’d like another set of eyes to evaluate your current coverage or make recommendations, please call my office and set up an appointment. I’d love to help you make a decision that feels right to you, even if that decision is to stick with what you’ve got.
