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Pay Less On Life Insurance Premiums

Feb. 25, 2013
6 mins
A young couple sitting in a cafe doing research on a laptop

7 Ways to Pay Less on Life Insurance Premiums

Regardless of your life stage, chances are you could benefit from having life insurance. The need for coverage isn’t just limited to those with dependents or mortgages - in fact, anyone with ongoing financial commitments should strongly consider insurance.

But are you paying more than you need to for that peace of mind? It’s true that the best coverage can be a hit to the wallet over time. Fortunately, there is money to be saved by understanding your insurance options. Check out these methods for paying less on your coverage:

Tip 1: Compare the market

All lenders price their policies differently, and the features offered by insurers can vary greatly. As everyone has differing coverage needs, insurance isn’t a one-size-fits-all solution. Comparing life insurances rates, term prices and types of coverage is vital to finding the best fit for your specific needs - and you could find that perfect coverage offered at lower premiums.

It's never been easier to find the right insurance coverage. Compare premium rates with the click of a button with our Life Insurance Comparison Tool. Click here to compare life insurance.

Tip 2: Re-Qualify, Not Renew

If you’re a term insurance policyholder, it’s actually in your best interest not to renew the same policy when your term is up - in fact, those who start from scratch with a new policy may pay over five times less on their premiums. Why such a dramatic difference in rates?

The answer lies in the two different sets of criteria used when assessing an individual for insurance coverage: the “select” mortality table, and the “ultimate” mortality table.

The select table is based on the actual state of health of the applicant and references their medical assessment. This is used to determine the insurance premiums for first-time sign ups.

The ultimate table, however, is based on general population statistics, which includes very unhealthy people with a high chance of death. These stats increase the overall premiums for this group. The bad news - anyone renewing their life insurance term is assessed by these criteria instead of their actual state of health. Therefore, if you’re healthy, it’s a good idea to be re-qualify for a new policy and avoid paying higher than necessary premiums.

However, if you’ve become ill during your insurance term, or are uninsurable, look into options that convert your term policy into a permanent option.

Tip 3: Blend Your Policy

Permanent, or whole life, insurance is considered the most comprehensive coverage because it is guaranteed for life, premiums are locked in and the policy accumulates cash value over time. It’s great coverage - but it doesn’t come cheap. The good news? You can have your cake and eat it too by combining the coverage of permanent life insurance with the bargain rates of term.

How it works: Blended insurance combines two separate insurance terms: one permanent participating policy, which earns dividends on an annual basis, and one term. The total death benefit is split between the two policies. For example, if you want $1,000,000 worth of coverage, both policies would be worth $500,000. Each year, dividends earned through the permanent life insurance go toward buying more permanent coverage called paid-up additions. This means that as your term life insurance decreases over time, your permanent life insurance is being topped up, with the end goal of becoming a completely permanent policy.

The main benefit to blending policies is that it’s cost-effective - it can reduce permanent life insurance premiums by as much as half. However, there is some risk involved. Because the dividends earned on the permanent life insurance are based on national interest rates, the policyholder could be on the hook if rates drop or term prices go up. In a case where dividends are not high enough to cover the paid-up additions, the policyholder may be faced with paying higher premiums for longer.

Tip 4: Get In Tip Top Shape

If you’re a smoker, here’s another reason to butt out for good: life insurance premiums can be double for those who light up. To qualify for non-smoking rates, quitters need to stay smoke-free for at least one year - so the sooner you stop smoking, the less you’ll be paying in premiums.

A healthy diet and regular exercise regime can be an effective preventative measure against chronic illness such as heart disease, Type 2 diabetes, and cancer - all of which can greatly increase term insurance premiums if present.

Tip 5: Reassess Your Coverage

While it’s important to have adequate coverage, there’s no need to pay for more than what’s necessary. It’s a good idea to check in on your current coverage and consider whether it’s still the right fit for your financial commitments. Always assess your insurance needs as your term expires, or if you experience a life change such as a new child, home purchase, or change in employment. As well, consider the progress of separate investments or savings earmarked for retirement. Could they provide a larger portion of income for your dependents? It may be because to scale back your insurance coverage.

Tip 6: Look For Hidden Fees

Depending on your insurer, there may be additional fees associated with your life insurance - and sometimes, you don’t realize it until it’s too late. The truth is, some insurance advisors have commissions to gain from your Life Insurance selection - and they may encourage you to choose a specific policy that may not be your best fit to pad their own pockets.

To ensure you’re getting straightforward advice, use the services of an insurance broker or fee-only insurance advisor. Because their services are paid for with a flat fee and they do not take commissions, chances are they’ll present you with a variety of better options and objective advice.

Tip 7: Consider Permanent Insurance When You’re Young

The trick to permanent life insurance is that the older you get, the more expensive it is - so you’ll never get a lower rate than the one you’d qualify for right now.  While it’s tempting to take advantage of the bargain prices offered by Term Insurance options now, you may be on the hook for higher premiums when you renew later in life. That’s why if you can financially swing the payments for Permanent Insurance now, you’ll find yourself with the best coverage possible when you’re older- and at a very competitive rate.

Penelope Graham

A first-time homeowner and newbie investor, Penelope Graham is the quintessential millennial, navigating the world of personal finance and wealth management. A self-professed monetary policy nerd, she follows the often-controversial housing market closely and specializes in mortgage, credit card and personal finance news.

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