The Best Ways To Save On Your Life Insurance Policy

When I think of fun things to do in my spare time, shopping for a life insurance policy  doesn’t rank well.

For most people, life insurance is something that they only think about when they need it.  And this is always the worst time to think about it.

Consider this.

You’re in your early 30s and are building your family.  You’ve been married for a few years and are getting ready to welcome your second child into the world.  Your career, health and life are looking good.

You’re also busy.  Another child means there’s extra bustle in your house.  You’re building your career with an extra project at work.  On top of that, you try to make your spouse a priority while not losing relationships with old friends.

These are some of the things that can cause you to lose focus on long term goals, such as how to provide for your family if something unexpected were to happen.  This is where a life insurance policy can get lost, even though it’s vital for your family’s financial plan.

Because a life insurance policy can become an afterthought, I want to encourage you.  A good life insurance policy should be easy to find, easy to understand and provide peace of mind for your family.  I hope to help you feel more comfortable securing your family’s future by walking through ways to save on a life insurance policy.

LIFE INSURANCE POLICY: DEFINITION, TYPES AND PURPOSE

To start, let’s define a life insurance policy.

A life insurance policy is an agreement made between a life insurance company and an individual or a legal entity.  Policies vary by company and even by state as regulations for such products differ across borders.  

A life insurance policy also spells out other information beyond who the company and insured individual are.  Other such terms defined by a life insurance policy are:

• The death benefit – This is the value of the policy that’s paid out when the insured passes away.
• The premium – This is most often a monthly payment required to keep the policy in effect.
• The policy length – This length of time is how long an insurance provider agrees to pay a death benefit.

For simplicity, these are some of the standard details of a life insurance policy.  Next, let’s look at different types of life insurance.  To keep things easy, we’ll cover the two main types of life insurance, term insurance and permanent insurance.

The discussion about which insurance is better will likely go on well into the future because individual situations and lifestyles vary.  And that’s ok.  We’ll compare the two in greater detail later.  For now, we’ll highlight the main points of both.

TERM INSURANCE

Term insurance is named this because it lasts for a specific period of time, also known as a term.  The most popular term policies can be purchased for 10, 20 or 30 year terms.  If the insured person passes away within the defined term, their beneficiaries receive the benefit.  If the term expires before the insured individual passes, the death benefit is not paid out.

Term insurance might be the simplest type of life insurance policy to understand.  There aren’t any extra features to worry about, so they’re pretty straightforward. 

Pass away within the defined term = death benefit paid out

Term expires before death = no death benefit is paid out

Because of its simplicity, term life insurance is also one of the cheapest ways to buy a life insurance policy.  Low monthly premiums and an easy to understand product make term insurance an attractive product.

PERMANENT INSURANCE

Permanent insurance is the other main type of life insurance.  It’s named permanent because the policy does not have an end date the way a term policy does.  So long as premiums are paid, the policy is in effect for life.  Permanent life insurance works like term in that if you pass away while the policy is in effect, your beneficiaries receive the death benefit.

Other than the policy term length, the other major difference with permanent insurance is the cash value these policies can allow you to build.  The cash value account is like an investment piece of the life insurance policy.  A part of your premium goes into this tax-deferred account and can be used while the policy is in effect.

Permanent life insurance is a bit more complex and can cost more over time as well.  Consider both and how they might be a fit for your lifestyle to determine how to be properly insured.

This brings us to our last point in our overview of life insurance: it’s purpose.  The main purpose for life insurance is to provide for your family after you’ve passed away.  Term insurance does that well by providing a guaranteed benefit in exchange for a monthly premium.  While permanent insurance will do the same thing, it becomes more complicated by offering the investment factor with the cash value account.  While there are certainly times for permanent insurance, don’t forget the goal.  Keep things simple when starting out and you can always add another life insurance policy as your life changes.

A QUICK WAY TO SAVE ON A LIFE INSURANCE POLICY

We’ll spend more time later working through the best ways to save on a life insurance policy.  But I want to look at bundling policies as a popular way to save money.  

Bundling insurance means you’re buying more than one type of insurance policy from the same company.  An example might look like:

When you first learn to drive, your parents will help you set up auto insurance.  As you get older and prepare to move out, you might add a renters or homeowners insurance policy with the same company.  If you decide to marry and start a family, a life insurance policy would be a sensible addition to your insurance portfolio.

So long as you buy all these policies from the same company, they’d be bundled.  And while insurance companies love bundling because of the added revenue, does bundling save you money?

Most insurance companies will advertise bundling different policies that will save anywhere between 10-30%.  Bundling also simplifies paying monthly premiums by only paying one company.

Where bundling can hurt you most is because you stopped shopping for better rates.  Bundling many policies can encourage a kind of set it and forget it attitude. This could mean you’re more likely to not shop for better rates when your policy renews.  Rates sometimes increase when policies renew.  After a few years, you might not be saving what you think you are with bundling.  Because of this it’s important to review your insurance policies often so you’re getting the best value. Also, be sure to get a life insurance quote before buying. Answering a few questions can give you a great idea of what your monthly premium payments will look like.

So if bundling isn’t the best way to save on your life insurance policy, what is?  I want to look at a few options that will be great ways to save.  One will even help with more than just your finances.  Let’s start with one we’ve already touched on.

SHOP AROUND

This seems so obvious.  I know.

This option requires some work, but it’s likely you’re shopping around for other things in your daily life so you could add this to your list.  Most policies renew every year and can be shopped easily.  Significant savings might be best realized if you shopped every few years as insurance companies will raise their rates annually.  

Let’s take a look at another way to save on your life insurance policy.

CONSIDER BUYING YOUNG

This might seem at odds with conventional thinking, but stay with me.

Most young people aren’t thinking of buying a life insurance policy, but term insurance will work in this example.

If you’re young and single and don’t have anyone depending on your income, life insurance can still help your loved ones if you were to pass away.  Some responsibilities that might qualify here are:

• Credit cards, auto loans or student loans that were co-signed for by a relative
• Utility bills and rent shared with a partner or roommate
• Final expenses, such as a funeral, that family isn’t expecting to shoulder

Young people can find that for the cost of a few coffee’s a month, they can buy a term life insurance policy that would meet these needs.  Of course, you can take the term policy out for a certain period of time.  This means a young person can have affordable insurance until they advance in their career and are able to afford a larger, more expensive policy.  They might also be able to use a smaller, more affordable policy until they have dependents that rely on their income. 

This article does a great job working through real life examples of what kind of life insurance policy is best given your life stage.

FOCUS ON YOUR HEALTH

Like buying a policy while young, your health has a big impact on what you pay for a life insurance policy.  Some insurance plans need a physical or health screening before you can buy a policy.  These screenings often include:

• Basic health questions  
• A medical exam where you draw blood, take a urine sample, measure blood pressure, and take height and weight measurements
• Ordering of records from your primary care physician

Because better plans are often offered to healthier people, you can start taking steps now to save money on your life insurance policy.  Eating healthier, getting more exercise and quitting smoking are three great ways to start realizing potential savings.  Also, you’ll be increasing the likelihood you live a longer and healthier life.  Focusing on your health, whether you buy life insurance or not, should be a priority.

Life insurance is often overlooked.  Most people might feel it’s unnecessary.  It’s easy to  focus on your family, your work, hobbies or extra activities and never consider the world without yourself in it.  Unfortunately, death is something you can’t avoid.  You have to think about how your loved ones can continue after your passing.  Knowing there are easy ways to save money on your life insurance policy, start securing your family’s financial future today.