Tuesday, October 8, 2013

Paying for Peace of Mind: How to Cut Costs on Your Term Life Insurance Rates

Term life insurance is already pretty affordable, so why don't you have more coverage? If you're like most people, you just don't have the money. Sure, it's cheap, but even cheap insurance adds up after a while. A policy here, a policy there. Pretty soon, your insurance poor. Still, there's that nagging voice in the back of your head egging you to buy more cover. Here's how to do it without breaking the bank.

Lock In Low Rates When You're Young

It's no secret that life insurance is cheaper when you're young. Life cover rates are determined by your age, health, and lifestyle. When you're young, you're usually in pretty good shape. You're also at a low risk of all-cause mortality. Because of that, premiums will be low. For cash value policies, the cash value account will grow very rapidly. Those premium payments won't increase on permanent policies, either, so you'll never have to fight rising insurance costs. 

Don't Buy More Than You Need

You should never buy more than you absolutely need. Buy a lot - yes. Buy more than you need - no. Add up all of your financial obligations and even obligations you expect to incur over time, like college tuition, and even your child's first car. 
Factor in your income - does your spouse need money to live on after you're dead? That has to be calculated into the total death benefit amount. 

Select Coverage Terms Wisely

Here's where most people screw up. When you buy life insurance, don't just look at the lowest possible premium. Sure, you want to pay a low premium, but you might end up paying more if you choose the wrong policy type. How?

Let's say you have a 30 year mortgage. You need life insurance for those 30 years. The problem is that a 25 year term policy costs slightly less, and you figure you'll take the risk on the 5 remaining years of the loan because it'll be almost paid off by then.

You die just after the policy expires. The insurance policy doesn't pay out, and your spouse is left with a mortgage balance to pay off on her own. You paid premiums for 25 years and now your spouse still has to pay off the mortgage. 

Take Advantage of Banding 

Another mistake people make is not taking advantage of banded rates. What is banding? It's a sort of unadvertised sale offered by the insurance company. It's a discount for buying death benefit in bulk. When you purchase more than a certain dollar amount, you receive discounted premiums. 

Banding is often used to incentivise people to buy more insurance, but it can actually save you money. For example, let's say you get a quote for $100,000 because this is what you need. However, if you buy $150,000, the premium will be cheaper than if you bought $100,000. What should you do? You should buy more coverage and save money. 

Shop Around For Rates

Companies like Wealth Smart can help you shop around for the best rates possible. Really, this is the oldest "trick" in the book. But, it's not really a trick at all. 

The simple act of shopping for insurance allows you to force insurance companies to compete for your business. At the end of the day, you win - you get low premiums you can afford for the life of the policy. 

Andrew Harvey is an insurance advisor of many years. Now semi-retired, he still likes to help others by sharing his insights on the Web.

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