Life insurance is a pretty important purchase. What else do you buy, knowing your loved ones might have to depend on it at any point over the next 30 years? A house? Maybe a car, if you're willing to drive an eventual clunker?
That's why it's important to feel comfortable with your purchase. Most people don't want to feel like they're paying too much (especially for something they hope to never use). But the good news is that if you play your cards right, life insurance can be an affordable peace of mind.
Here's how to make sure protection for your family doesn't break the bank.
Choose term life insurance
The first step in making sure you don't pay too much for life insurance is to shop for the right kind of policy.
The two choices most shoppers are presented with are term life insurance and whole life insurance. There are two main differences between these two policy types:
Term life insurance has an end date when the policy terminates and you stop paying premiums. Whole life insurance stays in force for as long as you pay for it.
Whole life insurance has a cash value aspect that acts as a savings component or investment over the life of the policy.
We only sell term life insurance because it's what most people need, and it's much, much cheaper.
While whole life insurance has a guaranteed minimum return, there are also high fees involved which can eat into any gains you make. These fees can cause whole life insurance policies to cost up to four times as much as term life insurance plans! The investment portion often isn't worth it, and you're better off buying term and investing elsewhere (like Betterment or Wealthfront, two of our favorite online investment services).
Plus, most people don't need a life insurance policy for their entire lives. Life insurance acts as income replacement to make sure your family can cover their expenses when you're gone. As you get older you have fewer of those expenses - the kids have already gone to college, you've been paying off your mortgage for a while, and so on - and you've hopefully been investing and saving over the years and built your own safety net.
Why pay more for something you don't even need?
If you're worried about having enough coverage over the years but are also afraid of overpaying, you can use the ladder strategy, where your coverage (and cost) steps down over time as your expenses do, to save big while making sure your family is still protected.
Avoid unnecessary riders
Riders are like mini contracts you can add to your life insurance policy to customize them to fit your individual need. Some of these can be worth it; a child rider can be a cheap way to add a little extra peace of mind, and a long-term care rider, which allows you to take money out of your death benefit in order to pay for long-term care (like a nursing home or private nurse), can be useful if you're a little older or have a family history of certain disease and is cheaper than a standalone long-term care insurance policy.
But other riders come at a (literal) price. The accelerated death benefit rider comes included with a lot of policies, but a return of premium rider - you'll get back the money you put into a policy if you outlive its term - can increase the premium cost (but could be worth it if you want a money-back guarantee on that policy).
When you're shopping for life insurance and looking to add riders, think of which ones you might actually need - no need paying for a child rider if you don't plan on having kids - and ask your agent or broker what the added cost of a particular rider will be.
Maintain a good driving record
You probably know that a good driving record can get you good deals on your auto insurance, but did you know it can help you lower your life insurance premiums, too?
That's because life insurance (and all insurance) revolves primarily around risk: How risky are you for the insurance company to cover? If you're a reckless driver who keeps running into light poles and the back of cars and are calling your insurer up every other month to help cover accident expenses, your premiums are going to be pretty high. If you're a good driver who rarely has to use your insurance, you'll get a break in premium costs.
Life insurance works the same way, and insurers look at a lot of different factors to determine how risky you are. Your health is an obvious one (which we'll talk about in a bit) but during the underwriting process, the insurer will also look at things like your hobbies and driving record. If you're a speed demon whose motor vehicle report is a quarter mile long, you'll pay a lot more than someone who obeys all traffic rules.
The latter is less likely to get into an accident, less likely to die over the life of the policy, and more likely to pay less every month!
Maintain good health
Easier said than done, right? But your health plays a huge role in your life insurance premiums, so we thought we'd end on this important note.
Your health is a huge indicator of how risky you'll be to insure, and that's why insurers spend so much time getting it right. You'll have to take a medical exam, where your baseline health (like your blood pressure) will be measured so the insurer can see if there are any underlying health concerns.
Nearly every aspect of your health is considered. Diabetes, high cholesterol, old age, obesity, mental health, and cancer will all affect your rates - usually by raising them. Even your family's health history is taken into account to see if you're at risk from genetic diseases.
As a general rule, the better your health is, the better your rates will be. And that's in addition to just feeling good about yourself when you're in good shape! Proper diet and exercise can help lower your rate, make your heart healthier, and give you good premiums at the same time.
But even if you're in less-than-optimal health, don't let that keep you from applying! Each insurer will judge your health and your rates in their own way, and an independent broker or agent can shop you around to get the best rates. In our insurer reviews, we even let you know how each insurer compares when it comes to getting coverage with complicated health histories. Never assume you're uninsurable, and never assume that you'll have to pay a lot to get affordable life insurance. With these four tips, you can make life insurance part of your financial safety net.