8 Ways to Save on Life Insurance

Talk about an unpleasant expense: Life insurance is something you pay a lot for, then never get to use.

Life insurance is probably one of the least understood major expenses. Many people buy it when they don’t need it. Just as many need it and don’t buy it. And many more don’t have it and don’t need it, but they allow salespeople or family members make them feel guilty for foregoing it.

Check out the following video, then read on for more details…

As I said in the video, you need life insurance if those you leave behind will suffer financially from your death. This is typical when you have kids, debt, and a one-earner household – that’s when losing a breadwinner can be tragic. When you’ve paid off the house, the kids are gone, the savings account is topped off, and your death is just an excuse for your remaining friends to get together and have a drink, your need for life insurance is over.

Tips to save…

1. Shop

Many sites, including this one, have insurance search tools that can help you compare quotes and features. But remember that no online insurance search engine – including ours – includes all companies.

Search tools are a great way to make sure what you have now is still a good deal. But if you’re buying your first policy, or know you’re going to replace existing coverage, more due diligence is in order. Check several search sites and beat the local bushes as well.

2. Buy term

There are two basic classes of life insurance:

Permanent, or whole life: As the name implies, these policies offer a lifetime of coverage. They also combine a savings account and life insurance contract, allowing you to tap the savings component, known as cash value, should the need arise.

Term insurance, on the other hand, has no cash value and covers you for a specific period of time, from one year to 20 or more. If you die during that term covered, your beneficiaries get a check. If not, you’re out the premiums.

While permanent sounds like a no-brainer, most people should buy term. The reason is simple – term is much cheaper. In addition, you usually need insurance most when you’re younger, in debt, and raising a family. As you age, pay off the mortgage, and no longer have people depending on your income, the need for insurance withers. Which is good, becasue the older you get, the more insurance costs.

Be aware that many insurance agents and some financial advisers will give you the opposite advice: They believe the forced savings offered by a whole life policy are worth the extra cost. But most objective advisers will tell you to buy term and use the difference in price to invest on your own.

The longer the term you buy, the less it will cost per year. In other words, you’re better off getting a 20-year-level premium policy than one that renews every two years. In an ideal scenario you’ll pick a term that matches your need for insurance.

3. Don’t buy more than you need

As someone who sold life insurance back in my stockbroker days, I can assure you that fear is often an integral part of the sales process. In addition, the insurance salesman (or online calculator) makes assumptions that may not accurately reflect your financial need.

For example, many salespeople will simply say to multiply your annual salary by seven. Many calculators don’t take Social Security survivor benefits into account. They might also assume you want a benefit big enough so your spouse and children can live forever off the interest alone. Or that your kids plan on attending Harvard. Or that your mortgage balance isn’t decreasing with every payment you make.

How much insurance you need isn’t an exact science. Maybe you want to leave your survivors wealthy, or maybe you just want to leave enough to pay for your funeral. But if you leave it up to a company-sponsored calculator or salesperson, expect a big death benefit – and a big premium to go with it.

Better idea? Figure out what your death would mean financially to your family and determine their needs, both short-term (paying for your funeral) and long-term (paying off the mortgage and college costs). When you’ve arrived at an estimate, subtract the money you have now or can expect from Social Security or work-related policies, then cover the shortfall with insurance.

4. Stay away from commissioned salespeople

Woody Allen once said, “There are worse things in life than death. Have you ever spent an evening with an insurance salesman?”

While Allen was probably referring to boredom, he could have been highlighting another drawback of commissioned salespeople. Simply put, the more you buy, the more they make.

But avoiding commissions doesn’t mean avoiding expert help. There are plenty of fee-only planners out there that can help you evaluate your need, then steer you to low and no-commission policies, like those from TIAA-CREF and Ameritas. Sure, you’ll have to pay for the adviser’s time, but you’ll probably offset the cost with less expensive insurance.

5. Avoid guaranteed issue (if you can)

Ever see a TV commercial – usually directed at older folks – offering insurance with no medical exam and insisting “you can’t be turned down”? That’s guaranteed-issue life insurance. It doesn’t take a rocket scientist to figure the angle: The death benefit is so low, the first few years of premiums may add up to more than your beneficiaries will receive.

Avoiding a physical sounds convenient, but you’ll probably get a better deal by submitting to one, even if you’re not in the best of health. If you know for a fact that you’re uninsurable, you may not have a choice. But if you have alternatives, explore them first.

6. Stay on top of it

While health issues will make your insurance more expensive, getting healthier can mean savings. If you quit smoking, lose weight, or make other life changes that lower the risk for the insurance company, don’t be afraid to contact them and ask for a reconsideration. But be prepared to provide proof, such as an extensive medical history, to get a lower rate.

Health isn’t the only thing that can lead to changes in your policy and premium. Have a new baby? You might need more insurance. Pay off the mortgage? Might need less. Periodically re-evaluate your coverage needs and costs.

If you need to increase your coverage, you may be able to do so less expensively by buying a rider (an addition to an existing policy) rather than taking out a new policy.

7. Pay annually

As with most kinds of insurance, companies often charge a little more if you pay premiums monthly rather than annually. You should also ask about discounts for allowing the company to tap your bank account and collect their money automatically.

8. Don’t buy it on kids

Unless your child is contributing financially to your family, you don’t need to insure their life.

As with the whole life-versus-term argument, this is advice not fully embraced by everyone. There are those who insist buying a permanent policy for infants is a good idea, for three reasons:

  1. If they should later develop a health condition that renders them uninsurable, at least they’ll have some coverage.
  2. Although it’s certainly more rare than with seniors, children die.
  3. They’ll establish a permanent savings account.

While these are valid arguments, they’re not enough to convince me – or most financial advisers. Sure, children can develop a health issue rendering them uninsurable, and they can die. But it’s not likely enough to pay for protection, especially for the high-cost kind that accompanies many whole-life policies. A savings account for kids is a great idea, but again, there are lower-cost ways of going about it.

Bottom line? You don’t have to be an expert to know whether you need life insurance – you just need an imagination. If insurance is important, do some reading, do some shopping and take action. If you need help, find it. But don’t rely entirely on online calculators or commissioned salespeople.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
How to Buy a Refrigerator, Step by Step

Here’s how I got the perfect appliance at the perfect price.

8 Secrets of an Expert Thrift Store Shopper

Here’s how a veteran thrift shopper scores the best deals — and turns a profit from them.

8 Things I Always Buy at Costco

From bacon to birthday cakes, here are my favorite deals at the popular warehouse store.

6 Reasons I Will Never Trust Suze Orman

Beware: The self-proclaimed personal finance expert has a track record that suggests more sizzle than steak.

The 5 States With the Worst Health Care for Retirees

All of these states are located in the same region of the nation.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

8 Tips for Retiring Comfortably on Social Security Alone

It’s never too early to start learning how to live well while living on less.

Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

11 Generic Products You Should Buy at Costco

Not all generics are worthwhile, but these are among the best from Costco’s Kirkland Signature brand.

9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

6 Legal Documents Retirees Need — but Don’t Have

Few retirees have all of these documents that are crucial to their golden years — especially during a pandemic.

These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

27 Things You Should Never Pay For — and How to Get Them for Free

When you know the tricks, you can save big on all kinds of useful things that others pay for.

13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

Can a Divorced Widow Claim Her First Husband’s Social Security Benefits?

The rules are complicated when it comes to eligibility for survivors benefits.

15 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

10 Things I Always Buy at Trader Joe’s

From snacks to sweets to side dishes, stock your cart with these time-tested favorites on your next TJ’s run.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.