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April 01, 2015 at 09:41 AM
Editor’s note: An expanded version of this article first appeared on Insure.com and is reprinted here with their permission. Click here for the original post.
Just as there are different life insurance plans to meet your clients’ needs, there are different ways to save money on life insurance.
As any good agent knows, it’s important to comparison shop for life insurance quotes. With the wide variety of plans and prices on the market, comparison shopping can save big bucks. In addition, here are 10 more ways your clients can save money on a life insurance purchase.
1. Consider term life insurance.
Some financial planners advocate permanent life insurance policies with cash value components because the policies force you to save money. Others recommend term life insurance for the cheaper premium and invest the difference.
But cash value in life insurance should not be considered a traditional investment. Any withdrawals or loans not repaid will reduce the death benefit. Also, if you take a partial withdrawal from the cash value of your policy in an amount greater than your total premiums, the withdrawal in excess of your total premiums is considered taxable income.
Furthermore, the difference in premiums between term vs. permanent life insurance is not just a matter of a few dollars per year. According to the Society of Actuaries, premiums for whole life can be five to 10 times higher than the same amount of level term life, depending on the kind of level term being compared. For example, if you’re comparing the premiums of 30-year level term it will be a smaller multiple, while premiums on a 10-year term policy could be a larger multiple.
Every time term life insurance is renewed, premiums will increase. Renewing a short term life insurance policy over and over isn’t a wise use of money. Instead, encourage clients to buy a longer term life insurance policy, or buy whole life insurance if they definitely want to leave money to heirs.
People with a short-term need generally include those who want life insurance to cover a specific debt — like paying off a mortgage.
2. Don’t buy a guaranteed issue policy if you’re healthy.
“Guaranteed issue” life insurance policies require no medical exam but may ask a few basic medical questions. Guaranteed issue policies are riskier for the insurer and are, therefore, more expensive than fully underwritten insurance policies.
Guaranteed policies are generally purchased by people who have difficulty obtaining life insurance due to medical problems. Clients with some medical problems are still likely to get better life insurance rates by opting for an underwritten policy, which requires a medical exam.
The high premiums, combined with a low face amount for the death benefit, can make guaranteed issue life insurance a less desirable option. With some of these policies, clients could end up paying more in premiums after only a few years than their beneficiaries might ever receive from the death benefit.
3. Improve your health.
Health problems make it hard to buy life insurance. High blood pressure, diabetes and heart disease are among those conditions that can make life insurance companies pump up your rate. Here are the most expensive medical conditions for life insurance shoppers.
Then there are rates for smokers and other nicotine users. There’s no escaping a high life insurance price, but shopping around is wise. Some insurance companies will consider someone a “nonsmoker” only if they’ve never smoked. Others require the applicant be “nicotine-free” anywhere from six months to five years to obtain a non-nicotine rate.
Clients who smoke marijuana, pipes or cigars, but not cigarettes, should still admit to being a smoker on the policy application.
Insurance companies may request urine or saliva tests to check for the presence of nicotine. Clients who chew tobacco might end up paying smoker rates for their life insurance policy.
Don’t bother trying to hide smoking from life insurance companies.
Another major health factor is weight. If your client is healthy but somewhat overweight, he or she will likely be quoted higher rates, too.
Clients who have a pre-existing medical condition that could lead to higher rates will make underwriters happier and probably get lower life insurance premiums by showing a history of improving health, taking medications regularly and acting responsibly about their health.
