How to Get Big Savings on Life Insurance

I was recently solicited in my office by a “group” insurance salesman located in Edgewater.  It was interesting because as a financial planning firm, we offer these products.  This salesman had obviously not done his homework.  

However, I’m always interested to hear the approach of different companies, so I gave him an ear for about an hour.  During our conversation, he made a nice-sounding sales pitch.  Unfortunately, there were several deficiencies in his logic. For the sake of brevity, I have noted the following four basic tips for saving on life insurance.

• Tip #1: Avoid buying more insurance than you really need.  People use life insurance for many different reasons. For example, to protect their family, to cover a home mortgage, to fund a business buy-sell agreement, to pay off debt and to settle estate taxes. The amount of coverage you need will vary depending on the purpose of your policy.  A general rule of thumb is six to eight times your annual income will provide your family with adequate protection.
•  Tip #2:  Estimate the number of years your insurance is needed.  Predicting your future is not always easy to do. However, calculating the amount of years you desire life insurance protection is a key to determining which insurance products best fit your needs.  You will maximize your insurance savings by choosing the policy that has the least expensive outlay over that period of time. 
• Tip #3: Avoid a big mistake! A natural reaction when buying life insurance is to focus on which policy has the lowest first year price. Be careful of this trap—some policies start out with low first-year prices and drastically increase. Sometimes the price will increase by five to 10 times more in later years.
• Tip #4: Read the fine print on policies offered through your work.  Typically group policy prices increase every five years, so your costs become extremely expensive the longer you have the coverage. Not to mention, if you ever leave your employer or get laid off, most companies don’t allow you to take your policy with you. There is something else you may not be aware of. Group rates are based on the total health of all the members of the group. Smokers are mixed in with non-smokers, and people with poor health are priced equally with those in excellent health.

If you are generally in good health, you can almost always find better rates than those offered through a group policy, such as those offered through voluntary benefit packages through your employer.