With life insurance premiums taking an important portion of your monthly budget, it makes sense to learn how you can save money on life insurance. Though there are many different way to save money on life insurance, the two most practical ways are to purchase the right type of policy and to only purchase the amount of coverage that you need.
The following article will provide you with additional information about these two practical ways to select a policy that meets all or your needs and then of course don’t forget the overall #1 way to save money on any type of insurance: shopping around to get the best price.
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How do I select the right type of life insurance policy?
There are two main types of life insurance policies, although within each there are several variations. The two main types are term life insurance and whole life insurance and they are vastly different. Term life insurance is a life insurance policy that is purchased for a pre-set term usually 20, 25, or 30 years. However, a term life insurance policy can be purchased for as little as one year. When you purchase a term life insurance policy, you decide on the amount. This amount is guaranteed to be paid out to your beneficiary upon your death.
The payout amount remains the same for the entire time you have the policy. It does not gain anything and has no cash value. Many insurance companies will guarantee your premium rate for the term. At the end of the term, you can just renew your policy, or drop it, however, your premium rate will be higher in a second term. This is due to the inflation that has occurred since the policy was purchased as well your increased age.
A whole life insurance policy allows you to purchase a set amount of life insurance. Instead of being for a term, it is for the life of the insured so it does not need to be renewed. The insurance company then sets a portion of the life insurance premium payment aside for the payout and uses a portion savings or investments. The money set aside for earns a small amount of interest and, along with your funds, results in the cash value of the policy. You can take out a loan once the cash value builds up or cash in the policy at any time for its surrender value.
At face value, whole life may seem like a good idea; however, there are some important things to consider. You will pay much more for a whole life policy than a term life policy. The money set aside for your cash value in a whole life policy will usually earn a much lower interest rate than simply putting the money in a mutual fund or another type of account on your own. Also, the cash value is lost to you if you don’t use it before you die. In order to use it, you will be charged a fee when taking a loan out against it.
You can save money on life insurance by choosing the correct policy for you and your life situation. If you are disciplined and take the money you would save on term life premiums vs. whole life premiums and invest it, you can save money on premiums and make more money through your investment. If you are not disciplined enough to do this, you may want to consider a whole life policy.
How do I purchase only the amount of life insurance I truly need?
Purchasing only the amount of life insurance you need is another way to save money. It may be tempting, when purchasing a life insurance plan, to go overboard for the sake of those you will leave behind. However, purchasing too much life insurance will only hurt you financially before you die. Your life insurance policy should cover your mortgage, your debt, and your income for at least one year. Beyond this, you may want to consider your children’s education or other life circumstances.
If you are a stay at home mom without a source of financial income, you will still need to calculate the financial effect that your absence would have on your family. Without you someone might need to be hired to perform tasks such as childcare, housecleaning, and other tasks that you perform on a daily basis. Talk to an agent about the appropriate amount of coverage in this situation.
Only getting the amount of life insurance you need will save you money on premiums. You can change the life insurance payout as you grow your financial portfolio or pay off your debt. It is better to be conservative when purchasing a life insurance policy and to adjust it throughout life as needed. Being prepared for your death should not hurt you financially during life. A conservative plan is often enough.
Shopping around will also help you save money on life insurance. One way to shop around quickly and save money is to use an online comparison tool. An insurance comparison tool will provide you with information on rates and policies from a variety of companies. Enter your zip code in now to start!