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8 ways clients can save money on life insurance

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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. 

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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.

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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.

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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.

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4. Buy only what you need.

Nailing down a formula for how much life insurance is an imprecise science. Clients should ask themselves how much money it will take to maintain their family’s lifestyle if they were to die. Is there money earmarked for their children’s education?

Here’s how to do a needs analysis for life insurance.

Experts advise conducting an analysis annually or at least once every three years. Also, always reexamine a policy whenever there’s been major life change. For example, if your client has a new baby, you have to recalculate college education needs and child-care costs. If your client owns a home, a mortgage is likely their biggest financial burden. Because the mortgage balance decreases with each payment, it’s important to include those revised figures in any calculations.

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5. If you need more life insurance, consider a rider as opposed to a new policy.

Just because their needs change doesn’t mean your client should run out and buy a new life insurance policy. In many cases, a rider adding extra coverage to an in-force whole life insurance policy can let them expand their coverage without sacrificing built-up cash value. There is sometimes an additional charge for adding a rider, so make sure to look into this. 

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6. Buy life insurance as soon as the need exists.

An advantage to buying life insurance as soon as possible is that premiums will be lower. As you age, life insurance gets more expensive. Many term policies give the option to renew your coverage at the end of the term without undergoing another medical exam.

Clients can also can lock in premiums by buying a “level premium” policy, which means for a specific time period, say 5, 10 or 20 years, the premium rate stays the same.

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7. Pay your life insurance bill annually.

Once your client has found the best insurance policy for their needs, find out if they can save money by paying annually. Some insurers charge fees for monthly billing.

In general, the fewer payments they make over the course of the year (known as fractional premiums), the less they’ll pay overall. Also, some insurers charge less if they can transfer the premium payments directly from a checking account.

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8. Ask for a rate reevaluation if your health improves.

It’s possible to save money even after a life insurance purchase. Just because your client has been put in a relatively expensive rate class doesn’t mean they’re out of luck forever.

If your client is paying higher premiums because of a specific health condition, ask the insurance company if they can apply for a rate reconsideration if their health has improved and they’ve sustained better health for at least a year.

Here’s how to request a life insurance rate reevaluation.

If your client has established a history of lowering your blood pressure, cholesterol, or any other controllable rate-increasing factors, many insurance companies will reevaluate their premiums if asked.

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