Life insurance provides essential financial protection but industry observers estimate that approximately 49 percent of adult Americans surveyed have no life insurance, and many of those who do purchase far less than experts recommend, according to the Insurance Information Institute (I.I.I.).
“If someone relies on you financially, you need life insurance,” said Jeanne M. Salvatore, senior vice president and national consumer spokesperson for the I.I.I. “The premiums are very reasonable when you consider the level of protection you receive.”
There are two major types of life insurance policies: Term and Whole Life.
Term insurance is a form of life insurance that pays out only if the death occurs during the “term” of the policy, which is usually anywhere from one to 30 years. The premium rates for term policies are comparatively less expensive than they used to be as Americans as a whole live longer and healthier lives.
If you are buying a short-term life insurance policy (under 10 years), look for renewal guarantees. A renewal guarantee gives you the right to start a new term after the current one ends, paying a higher premium based on your current age, but without requiring you to undergo a new health exam or submit any other “evidence of insurability.” Without the renewal guarantee, you would have to start from scratch when applying for a policy and, if your health has deteriorated in the interim, you might end up paying higher premiums or not getting coverage at all.
Whole life insurance is sometimes referred to as permanent life insurance, and it encompasses several subcategories, including traditional whole life, universal life, variable life and variable universal life. Unlike term life, permanent policies pay a death benefit whenever you die, even if you live to be over 100. Universal life is the most common type of permanent insurance policy, with traditional whole life the next most common type. The premium rates for whole life policies have generally remained stable in recent years.
“Look for a policy that meets your needs,” said Salvatore. “There are ways to save money when buying life insurance but they don’t always involve paying a lower premium immediately.”
The I.I.I. offers the following tips to maximize your life insurance dollars when buying a policy:
Assess the Quality of the Company
An insurance policy is only as good as the company that backs it. You should make sure that the company that issues your policy would be around to service it and eventually to pay the death claim. To help you find strong companies, there are several rating agencies that assess insurance companies on their ability to remain financially sound over the long term. A rating represents an independent assessment of the insurer’s ability to pay its claims on time and meet all its other financial obligations. Select from at least two of the four leading rating agencies: A.M. Best, Fitch, Moody’s and Standard and Poor’s. The I.I.I. offers guidance on selecting the right life insurance company—see “How do I pick a life insurance company?”
Look into Group Insurance
Consider participating in your employer-sponsored group life insurance program, even if you have to contribute to it financially. Employers often subsidize their group insurance costs, so it can be less expensive than purchasing an individual life insurance policy. Employer-sponsored group life insurance premiums are usually paid through a payroll deduction. Before making a final decision, be sure to compare employer-sponsored group and individual rates because, depending on your age and health status, group insurance may or may not provide a savings. In comparing group to individual life insurance, remember that if you have over $50,000 of group life insurance, the Internal Revenue Service determines how much it costs to provide the amount over $50,000 and imputes taxable income for that cost. The IRS rules are generally something consumers in their 50s and older, as well as those who are buying larger amounts of life insurance coverage, ought to consider.
Buy When You Are Healthy
Find out which rate class you will be grouped into and, if necessary, consider making some lifestyle changes—not smoking, maintaining a healthy weight and exercising regularly—to qualify for a more favorable rate class. Buy when you are younger and healthier if possible. Older people and those not in the best of health pay steeply higher rates for life insurance, so buy as early as you can, though not until you have dependents.
When You’re Ready to Buy, Shop Around to Get a Good Rate
Life insurance is a very competitive business, and you can find differences of hundreds of dollars (for annual premiums) among financially strong companies for the same policy. Internet quotes may be a good place to start. You can also ask an agent or broker to get you a premium estimate.
Look for Premium Discounts
Most companies offer rate discounts for specified insurance amounts. For example, you might actually pay a lower premium for $250,000 of life insurance than for $200,000, or for $500,000 of life insurance than for $450,000, because a discount “kicks in” at the higher insurance amount.
Beware of “Fractional Premiums”
Typically, you can pay your annual life insurance premium in a single payment, or in smaller amounts more frequently during the year. Although the latter method might seem easier, some companies add steep charges for paying premiums in installments.