Being young and in good health is an easy way to save on life insurance. But even when you’re older, there are ways to save on life insurance that you may not know about.
Here are six ways to save on life insurance that may surprise you:
1. Shop around. This seems like a no-brainer, but there’s an axiom in the insurance industry that people buy life insurance from the first person who asks them to buy it, says David Mannaioni, an associate professor at the College for Financial Planning.
“It’s just one of those unpleasant realities that people don’t want to face,” Mannaioni says.
So at least try to save yourself some money by shopping for multiple quotes and not going with the first policy offered. Big insurance companies charge two to three times the premiums that smaller companies with the same financial ratings do, says Tony Steuer, an insurance literacy expert.
“Don’t rely on an insurance agent just because they’re your buddy or they come recommended,” Steuer says.
2. Laddering. Buying term life insurance as steps in a ladder can provide more coverage for when you need it and less for when you don’t, Mannaioni says. Most people need life insurance during their working years and when they have children and a mortgage. But they need less coverage when they’re older and no longer have a mortgage, the children have left home, and they’re retired.
Mannaioni offers the example of buying three term life insurance policies: $100,000 in coverage for 30 years, $200,000 in coverage for 20 years, and $200,000 in coverage for 10 years.
The terms will end when less coverage is needed, and will cost less than a 30-yeart term policy for the same overall amount, he says. For example, a $750,000, 30-year term policy for a 35-year-old man in good health costs $58 per month. Laddering three $250,000 policies cost $47 total, an 18 percent savings over buying one policy.
3. Set your premium. With a universal life insurance policy, you can design the premium to be low in the early years and step up in later years to make sure the policy lasts for your lifetime, says Mike Kilbourn, a financial planner in Naples, Fla. The premium can be set so the policy is designed to last to life expectancy, and if it looks like the insured will live past life expectancy then the premium can be increased to add to the longevity of the policy, Kilbourn says.
4. Get a loan. The premiums for a life insurance policy can be borrowed from banks, private investors and other sources, Kilbourn says. Collateral will have to be put up for the annual premium loans, but eventually the cash value of the policy will increase and could provide enough collateral, he says.
The loan could free up the premium dollars the client would have had to apply to the policy, and instead invest the money in other areas. The loan can be repaid when the investment matures.
5. Pay annually. Some companies offer up to 5 percent savings on premiums by paying in full once a year instead of having monthly payments. Automatic bill pay can add 1 percent more in savings.
6. Return of premium rider. If available, this policy add-on may cost 25-35 percent more in premiums, but if you don’t die during the claim period, you receive part or all of your premiums back, says Greg Lessard, president of Aspen Leaf Partners, a fee-only financial firm. The rider can help mitigate the risk of “If I don’t use the coverage, I lose all the premium dollars,” Lessard says.
Aaron Crowe is a freelance journalist who specializes in personal finance topics.