Top 10 Hacks for Saving Money on Life Insurance So You Can Focus on What Matters

Nadav Shemer
Top 10 Hacks for Saving Money on Life Insurance So You Can Focus on What Matters
Would your loved ones have enough money to maintain their current standard of living if–Heaven forbid–you died?

This isn’t a pleasant question to have to ask yourself, but if you have financial dependents then it is necessary. If your answer is ‘no’, then you should consider purchasing life insurance. That way, if you die, your loved ones will receive a tax-exempt cash sum (known as a ‘death benefit’) that helps pay for things ordinarily covered by your income. 

Now, we know what you’re thinking: what will this all cost? Well, the good news is life insurance doesn’t have to break the bank. In the U.S., the average monthly life insurance premium is $44 per month, according to S&P Global Market Intelligence. You could end up paying less than that just by following a few simple rules.

1. Buy young

Your age is one of the most important factors in determining the cost of your life insurance premium. As a general rule, the younger you are when you purchase your policy, the less you’ll pay. That’s because (and apologies for being so direct here), the younger you are, the less likelihood of you dying. Buying sooner, rather than later, gives you the opportunity to lock in a lower monthly premium.

2. Look after yourself

Your health is another major factor that insurance companies look at when calculating your monthly premium. The healthier you are, the lower risk you pose to the insurer and so the less they charge you for coverage. When you apply for life insurance, you should expect to have to reveal how well you look after yourself. If you’re overweight, smoke, or don’t do enough exercise, you will have to pay more for coverage.

3. Buy term insurance

In the United States, there are two major types of life insurance: term and permanent. Term insurance provides coverage for a set period of time, usually between 10-30 years. Permanent life insurance (whole or universal) guarantees a death benefit whenever you die, plus a tax-deferred savings and/or investment component which accumulates a cash value. Term insurance is generally a lot cheaper than permanent. It typically comes with a fixed premium that stays the same for the entire duration of the policy. 

4. Get the right amount of coverage

One of the useful things about life insurance is that you can choose your coverage amount, e.g. $250,000, $1 million. It can be tempting to go for the highest amount, but that’ll cost you more. The most sensible thing to do is to choose a level of coverage that protects your dependents and that you can afford. With that said, keep an eye out for discount offers for specific coverage amounts. In some cases, it could actually cost you less to buy a slightly higher amount of coverage.

5. Consider employer-sponsored life insurance

Roughly three in every five American employees has access to employer-sponsored group life insurance. Group health insurance is often (but not always) cheaper than individual cheaper health insurance. The way it usually works is that a certain amount of coverage (e.g. $50,000) is paid by the employer, with any extra coverage paid for by the employee. Group health insurance comes straight out of your payroll, which is super convenient. Many group insurance policies don’t require a health exam, which is particularly good for people with below-average health.

6. Shop around to get a good rate

Whether you’re planning to participate in a group plan or buy your own individual policy, always do a comparison shop. The quickest and easiest way of comparing life insurance policies is to use an agent, broker, or marketplace. Life insurance prices are highly regulated, and agents can’t offer discounts. So, all you need to do is find an agent or comparison site you trust to offer you the best possible comparison. Many different factors go into determining your life insurance premium, including health, age, sex, family health history, and occupation. Therefore, it’s super important to apply for a personalized comparison and not just rely on general information about different providers.

7. Do the medical exam

No medical life insurance is quick and convenient, but it may end up costing you in the long run. If you’re in decent health, then as a general rule you should take the medical exam. The test only takes about a half-hour to complete. If it goes well, the insurer will conclude that you’re a low-risk case and offer a lower monthly premium. Of course, if you’re worried about your health, then you may be better off choosing the no-medical option.

8. Look for renewal guarantees

If you purchase a term policy, a renewal guarantee gives you the option of purchasing a new term immediately after the current one ends. Your new term will carry a higher premium based on your age at the beginning of the term. However, you’ll be exempt from having to take a new medical exam or submitting loads of documents about your health. In short, a renewal guarantee protects you from being penalized financially in the event that your health gets worse before you purchase a new term.

9. Pay the annual fee up front

The up-front fee is one of the simplest ways to save money on insurance, whether it be life, auto, medical or anything else. Top insurers offer discounts of up to 8-10% for paying your annual fee at the start of the year instead of in 12 monthly instalments. For example, a $44 monthly premium would cost you $528 over the course of one year. But with a (hypothetical) 8% discount for autopay, you would end up paying $486, a $42 saving.

10. Check your provider’s financial strength

This final tip won’t save you money–in face it might end up costing you more–but it is essential when buying life insurance. Only purchase coverage from an insurer with a strong financial strength rating. Five independent agencies–A.M. Best, Fitch, Kroll Bond Rating Agency (KBRA), Moody’s and Standard & Poor’s–rate the financial strength of insurance companies. A.M. Best has the most extensive database of companies. The better a company’s rating, the more certain you can be about their ability to pay out your policy.

Shop around – and put forward your best self

If we had to condense our 10 tips to buying health insurance into just two golden rules, they would be: shop around and put forward your best self. Shopping around is essential to finding the best deal for any product or service, whether it be a summer vacation, Xmas gifts, life insurance or anything else. When it comes to life insurance specifically, then you should know that your insurer will assess you on how likely you are to claim on the policy (or in other words, and there’s no way of saying this nicely, how likely you are to die). The better you look after yourself, the less you will end up paying.

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Nadav Shemer
Nadav Shemer specializes in business, tech, and energy, with a background in financial journalism, hi-tech and startups. He enjoys writing about the latest innovations in financial services and products.