How to shop for life insurance like you shop at Costco


Adam Cecil

Adam Cecil

Former Staff Writer

Adam Cecil is a former staff writer for Policygenius, a digital insurance brokerage trying to make sense of insurance for consumers. He is a podcast producer, writer, and video maker based in Brooklyn, NY.

Published February 24, 2016|4 min read

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our

editorial standards

and how we make money.

News article image

There’s one thing we love about Costco, Sam’s Club, BJ’s, and all of those other big box stores out there: bulk buys.You know bulk buys. They’re the tiny miracle that let you buy huge amounts of regular household goods for super cheap. Some examples: Forty-eight rolls of toilet paper for less than twenty four bucks. A tub of eighty-one Tide Pods for twenty bucks. The box of twenty-four individual packages of seaweed that I bought on Amazon for thirteen bucks (I went through a phase).The logic behind bulk buying is pretty simple: because you’re committing to buying a large amount of a single consumer good, it costs less per unit (per roll of toilet paper, for example) to store and distribute that good. The big box stores share some of those savings with you and you drive away with a car food of paper goods designed to soak up liquids.Fun fact: life insurance works in a surprisingly similar way! (Please note that PolicyGenius is not liable for damages if you did not find this fact fun.)

Life insurance companies use something called "banding" to price out your monthly premiums. While most people are used to insurance premiums coming in as a solid number — say, $300 per month — life insurance companies actually price your coverage in $1,000 units. If we extend the metaphor of bulk buying toilet paper, these $1,000 units are individual rolls.And just like with big box stores and toilet paper, it costs less for the insurance company to sell you more of these units. Why? Life insurance companies use your premiums to invest in stocks and other investments vehicles. The more coverage you purchase, the more money you’ll pay in premiums, and the more money they’ll have to invest and profit off of. Therefore, the life insurance company can afford to offer you more coverage at a lower price per $1,000 unit.You know how toilet paper companies package their rolls in packs of twelve, or twenty-four, or thirty-six? Each one of those packs has its own price per unit — how much you’re paying per individual roll. Life insurance companies use banding and price breaks to implement the same pricing scheme.Obviously, buying life insurance is not like buying toilet paper, so let’s use a few made-up numbers to illustrate this point. Say you’re buying life insurance from Great Insurance Company (GIC). GIC has price breaks at $100,000, $500,000, $750,000, and $1,000,000. The ranges in-between these price breaks are called bands. Let’s look at what the annual unit price is for each of these bands for a thirty-year-old male in perfect health:

  • Below $100,000 — $2.00 per $1,000 of coverage

  • $100,000 to $499,999 — $1.70 per $1,000 of coverage

  • $500,000 to $749,999 — $1.50 per $1,000 of coverage

  • $750,000 to $999,999 — $1.30 per $1,000 of coverage

  • $1,000,000 and above — $1.25 per $1,000 of coverage

As you can see, depending on what amount of coverage you’re looking for, you may be able to afford getting more coverage thanks to banding — and in some cases, even save money.An example: You look at a policy with $450,000 of coverage at GIC. That’s 450 units at $1.70 per unit annually, which comes out to $765 per year or about $64 per month. However, if you increased that to $500,000 worth of coverage, you’d be buying 500 units at $1.50 per unit annually. That adds up to $750 per year, or about $63 per month. You shave a small amount off of your premium and you get $50,000 more in coverage to protect your family. Seems like a pretty good deal!

Of course, life insurance does not come at a standard price for everyone. The price per unit will depend on multiple factors, like your age and health. It should also be noted that every life insurance company has different standards for how they evaluate those factors — even if you’re not in perfect health, there may be a life insurance company that would give you a great premium. Additionally, each life insurance company decides their own price breaks and banding.The best way to shop for life insurance is not at a brick and mortar big box store — instead, you should use an online quoting engine that can compare multiple different life insurance companies at once. If you use PolicyGenius’ life insurance quoting engine, you also get the benefit of a qualified agent on the phone who can help you analyze price breaks and bands to get the best possible deal on your life insurance policy.

Image: Thomas Hawk