10 Easy Ways to Minimize Your Life Insurance Premiums

by Miranda Marquit

Girl placing coin in piggybank

Life insurance is a necessity if you want the peace of mind of knowing your family will be financially cared for in the event that you pass on earlier than expected. However, life insurance can get expensive, depending on a number of factors. That's because you have to pay regular premiums in order to keep your coverage and ensure that your family members receive the death benefit to which they're entitled.

Fortunately, you can reduce your premium payments with a little planning. Here are 10 easy ways you can minimize your life insurance premiums:

  1. Shop around for the best value: Don't purchase a life insurance policy from the first agent you speak with. Shop around. Get life insurance quotes from three or four agents. Make sure you're doing an apples-to-apples comparison, though. You want to verify that the policies you're comparing have similar benefits and features, including length of policy and amount of death benefit. After shopping around, compare the quotes you've received, and choose the policy that offers the best value for your premium payment.

  2. Look for package discounts on insurance: One way to reduce your overall premium payment is to purchase more than one type of insurance from the same company. Many insurance agents sell packages that include home, auto and life insurance. If you get three different types of insurance coverage from one agent, it is possible that you might end up with a discount on all your premiums, lowering your life insurance premium.

  3. Purchase through your employer: Many employers offer the option to purchase life insurance at a discounted rate as part of a benefits package. Speak with your employer's human resources or benefits department to find out what sort of options are available. In some cases, you can get a very good price, since employers will pay a portion of your life insurance premium as part of employee benefits. Make sure you understand the fine print, though, since some life insurance policies see reduced benefits if you change jobs. Know all of the requirements for continued eligibility and benefits before you agree.

  4. Consider term life insurance: If premium payments represent your main concern with regard to purchasing a life insurance policy, then it is a good idea to consider term life insurance. Term life insurance is only good for a certain period of time, usually 10 or 20 years (30 year policies are becoming more common as well). It doesn't build cash value, so it is usually less expensive than whole life insurance or universal life insurance coverage, both of which can build additional value and cover you for your entire life, as long as you pay your premiums. With term life, it is possible to get more coverage for less. Some term life policies even refund a portion of your premium payments if you live out the entire term of the insurance policy.

  5. Quit smoking: Insurance is all about risk. The higher risk you represent, the higher your premium. As a result, those who engage in activities that are known to be dangerous, such as smoking, will see higher life insurance premiums, since they are more likely to die than someone who does not smoke. If you are looking for a lower life insurance premium, you can increase your chances by no longer smoking (although life insurance for smokers is available).

  6. Buy when you are young: Age is another risk factor that insurance companies consider. When you pay insurance premiums, the company takes that money and invests it, hoping to earn a good return. Insurance companies are in business; if they don't make money, they can't keep insuring people. If you live longer, the insurance company has more time to earn more money on you. When you die sooner, though, the company has to pay out the death benefit, possibly without receiving enough in premiums and returns on investments to cover the cost of fulfilling the insurance policy terms. The younger you are when you buy, the less risk the insurance company has of losing money when you die, so your premiums are lower.

  7. Avoid risky activities: Life insurance companies want to know what sort of activities you do, and consider the kind of job that you have. If you enjoy extreme sports, or have a dangerous job, your risk profile increases. You will see a higher premium payment on your life insurance policy because your activities increase the chance that you will die before the insurance company can break even - or make money - on you. If you avoid putting yourself in dangerous positions, you will have lower life insurance premiums.

  8. Practice good health habits: Those who live healthy are more likely to live longer. If you can show that you are in good health, your life insurance company is more likely to charge a lower premium. Consider getting regular exercise, eating healthy and engaging in activities that aid in stress relief. Part of setting your premium is a health exam. If you have good health habits, your blood pressure, cholesterol, and other indicators will help you minimize your life insurance premiums.

  9. Buy in multiples of $250,000: Rounding up can provide you greater value for your life insurance dollar. In some cases, buying $240,000 in life insurance can cost more than purchasing a $250,000 policy. If you want more coverage, sticking with multiples of $250,000, such as $500,000, $750,000 and $1 million can be helpful in getting an affordable premium. Do a check, figuring out the rate per $1,000 of coverage. You might find that once you reach a certain level of coverage, there is a price break.

  10. Only buy the coverage you need: It might surprise you to learn that some people are actually over insured. They have purchased life insurance polices with significantly more coverage than they actually need. You can use your money more effectively by calculating how much life insurance coverage you actually need, and then using the savings in premium payments to invest and earn a return. One rule of thumb is to get life insurance coverage equal to between five and seven times your annual salary.Another way to calculate your life insurance needs is add up your expenses for each year, and then multiply that by how many years your family might need to make up for your missing income. Other methods include calculating how much it would take to pay off your obligations (including your mortgage) and send your children to college. Carefully consider your needs, and what the money is likely to be used for, and then get just what you need in terms of coverage, round up to the nearest multiple of $250,000.

With a little savvy shopping and careful consideration, it's possible for you to minimize your life insurance premiums, saving you money while providing you and your family with peace of mind.

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