How to Save on Life Insurance

Look upon life insurance as a “forced” savings account.  Accordingly, in your 20s, whether you are single or married, shop around for the best term policy you can easily afford and put the difference it would cost to pay for a whole life policy towards an Individual Retirement Account (IRA).  If your life style changes–if you marry or have children–these family members can be added as riders to your original term-life policy.  At about age 50, convert your term policy to a whole life policy, or even better, a universal life policy.  Both whole life and universal life policies never expire as long as you pay the premium.  The cost of a whole life policy is set at the time you buy the policy; however, term-life premiums go up at the end of a particular period of time.

The one legal prerequisite for taking out a life insurance policy on another individual is that the individual taking out the insurance has to have a monetary interest in that individual’s death–meaning he or she would gain or loose money because of it.  Ordinarily, that means that most insurance policies are written on oneself and close family members (spouses and children); however, partners in business as well as long-term domestic partners if they can also verify a “financial relationship” can take out insurance on each other, and employers can take out insurance on employees as well.

Most term policies are nonrenewable after a certain age specified in the policy (usually age 70).  Also, if you change employers and a term-life policy came with the job, you may need to take out another term-life policy.  The older an individual is when taking out any kind of life insurance, the higher his/her premiums will be.  Universal life allows the client to change the amount of the premium he/ she wishes to pay within a certain range while the insurance company invests the difference between how much a universal life and a whole life policy would ordinarily cost. 

A comparatively small whole life or universal life policy ($25,000 to $30,000) will pay for burial expenses with perhaps some money left over to pay for the estate’s expenses. Take out a term life insurance policy with riders for a spouse and children if attempting to guarantee that your children will have the money to go to college or if protecting a mortgage. Jumping juvenile policies that usually start as riders to term-life insurance can be converted to small whole life policies that are extremely affordable when a child reaches his or her mid-twenties, so whatever you do, if as a young adult, you have the chance to continue this jumping juvenile coverage, don’t let it lapse.  You can’t find a cheaper whole life policy anywhere.

Shop around for rates on line, but understand that if you request any information, a local agent will call. Indeed, even if you are only seeking burial insurance, for example, the often advertised Colonial Penn, a local agent will ask to set up an appointment. 

Now for a personal note: If you aren’t really interested, don’t agree to an appointment.  Agents usually pay a substantial amount of money for leads each month and also must visit at least five prospects each day, often traveling hundreds of miles, so a completely uninterested prospect or a prospect that fails to show for an appointment completely wastes the agent’s time and money.  Moreover, if you drop a policy within a year of taking it out, the agent will need to pay for the difference out of his or her earnings.  Consequently, high-pressure sales tactics on the agent’s part really don’t work in the long run, but the agent does want to make a sale on the first or second visit.

Many insurance companies advertise low-cost burial policies usually aimed at older adults who don’t have any life insurance.  Usually, these policies will pay for only a very low-cost funeral without any of the trimmings.  However, during the agent’s visit, he or she will usually offer an upgrade with better rates provided that the prospective client can pass on site medical questions backed by a physician’s current appraisal of the individual’s health.  The agent also must ask that the prospect sign a form allowing the insurance company’s underwriters access to his or her current medical records.  Unless a policy is very large, the prospect probably won’t be asked to submit to a medical physical.  Before deciding to take out a whole life policy, older prospects should check out pre-paid funeral plans in their area, so they will have a cost comparison.  It’s also perfectly acceptable to talk over the life insurance agent’s offer with adult children before signing the contract on the agent’s second visit.

During the agent’s interview with any prospective client, he or she will also quite possibly offer long-term care insurance and annuities.  The rates on long-term care insurance incidentally are lower the younger a policy holder is when he or she takes out a policy, so the 50s are an optimum age for buying relatively inexpensive long-term care insurance.  Most individuals who will end up using long-term care end up using it for two years or less.  When purchasing a long-term care policy, make sure that it provides for both home health care and for care in an institutional setting.  Long-term care policy rates incidentally can and do go up just like health insurance.

Now for some tips that really save consumers money:  If you smoke, stop.  Smoking substantially raises premiums.  Lose weight if your weight is more than the weight range suggested by actuary tables for your age, sex, and frame since being overweight also really raises premiums or is even a reason to deny coverage.  If you plan to take out a life insurance policy this year, loose weight gradually with your physician’s blessing (so this effort can be documented) because most underwriters look with disfavor upon too rapid a weight loss.  After you have purchased a policy if while still a smoker or over weight, notify your insurance company, and it will lower your rates.

Most insurance companies also offer discounts for paying policies yearly in a lump sum or for six or three months at a time.  They also deduct the policy automatically from a checking or savings account and will not issue a policy unless an individual agrees to pay for it this way.  However, many agents will be more than willing to go to a bank or credit union to help a prospective client set up a checking or savings account if necessary.

By the way, although I now teach, a few years ago, when I was going through a particularly rough time financially, I supported myself selling life insurance for two years. Many insurance agents in the United States either sell insurance on the side or else sell life insurance as a second career.  It takes a lot of training to sell life insurance, and agents also have to undergo continuing education every two years to renew a license within their state.  Contiuing education includes training in ethics and consumer education.  If you think that an agent is unethical, notify his or her company headquarters.  State boards of insurance have the power to fine agents or revoke their licenses.  Most insurance agents I have known want to do right by their clients.