How Do I Know I’m Paying the Lowest Price for My Life Insurance?

by Kerri-Lynn McAllister October 19, 2016 / No Comments

You never know if you’re paying the lowest price for life insurance because each contract is unique. The insurance company calculates your premium after you apply for coverage. You could pay less or more than the expected price.

Compare prices

You’ll find price comparisons for term life insurance on various sites. You won’t find all the products but you’ll get a good idea. For permanent life insurance or special situations, you’ll likely need to talk to an insurance advisor.

Don’t pick too short a period

Term life insurance premiums jump sharply at each renewal. If you think you need coverage for 10 years, Term 10 is an excellent choice. If you really need coverage for 12 years, then Term 20 could be better. Some companies let you pick the term. You could get exactly 12 years of coverage. Even then, you might want to be conservative and add a year or two in case life doesn’t unfold the way you expected.

Don’t pick too long a period 

You might be encouraged to buy permanent life insurance. If you cancel after 8 years, you could have bought term 10 life insurance for a fraction of the cost. You may need permanent insurance, but not today. Many term life plans allow you to convert to permanent coverage later. That might be a more affordable option.

If you allocate too much of your budget to permanent life insurance, you have less for other forms of protection which could be more valuable in the short-term such as disability insurance or critical illness insurance.

Get volume discounts 

Could $250,000 of life insurance cost less than $200,000?

The rate per $1,000 of life insurance decreases as you buy more. Here’s a comparison for Term 10 on a male nonsmoker age 45 in standard health:

  • $200,000 costs $334.00
  • $225,000 costs $370.75
  • $250,000 costs $303.00
  • $300,000 costs $355.60

This company has a volume discount (called a “band”) that starts at $250,000.

Get bundling discounts 

If you buy more than one product from the same insurer, you might receive discounts. For instance, you might add critical illness insurance or your spouse might add life insurance. It’s easy to forget that a stay-at-home spouse can also need insurance.

Pay premiums annually 

While monthly premiums are convenient for budgeting, paying annually usually saves you money. For our example, $250,000 of Term 10 costs $303.00 a year or $27.27 a month. If you pay monthly for a year, you’ve paid $327.24. That’s an extra $24.24 or 8%.

Buy before your age changes 

Life insurance premiums are usually based on your age on your nearest birthday. That means that if you’re within six months of a birthday, your premiums are based on your age on that birthday. If you turned 45 on July 1st, and applied for insurance on Jan. 10, your rates would be those for a 46-year-old. For our example, the annual premium for $250,000 of Term 10 increases from $303.00 to $327.00 between those ages — an extra $24 or 7.9%.

Be wary of big savings

If the price from one insurance company looks substantially lower, you could easily be getting less without knowing. For instance, the rates might be for “elite” (excellent health) from one company and “standard” (normal health) for another. That’s not a fair comparison. If you qualify for better rates, you get them automatically.

Cheapest isn’t always best 

Products and companies differ. There may be features or benefits you would like to get. You may have more comfort with specific brand names and be willing to pay a little more for extra peace of mind. Otherwise, who would buy from Apple or Tesla?

There are many ways to save on life insurance and still get excellent coverage.

Get a life insurance quote now.

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Flickr: Sara Long