AFFORDABLE LIFE INSURANCE IN 2017 – THE 8 MOST OVERLOOKED SAVINGS SECRETS
Every industry has secrets.
In the life Insurance industry, one of the biggest is “how to find affordable life insurance.”
Skip Intro – See 8 Secrets
How is it possible that some agencies say they can save a client 50-70% or more on life insurance?
Is that a scam?
… and if not, what’s their secret?
We’ve all seen the commercials, and every company promises to have the lowest rates… to save you 15%, 73%, etc., but how do you really save money on Life Insurances?
Since we’ve heard this question so many times, we created this 3,000+ word odyssey revealing our absolute best secrets to saving on life insurance.
In this guide, we’re not only giving you access to our best tips. You’ll also learn about commonly assumed “facts” about life Insurance which are completely untrue, and others hidden from the public which will surprise you! In the end, you’ll have all the ammunition you need to find the most affordable life insurance policy possible for you and your family.
Quick Article Guide:
- Policy Layering
- “No Name” Insurance Companies
- Group Policy Savings
- Specialty Short Terms
- How to Pay LESS for the SAME coverage
- The Saving Power of an Independent Agent
- Find Your Company’s “Death Benefit Sweet Spot”
- Reducing Your Benefit
- BONUS TIP: Policy Bundling
1. Policy “Layering” – How to Save Money with Multiple Policies
Life insurance companies won’t advise this, but you’re able to split your life insurance on multiple policies. Why would you want to, and how can it save you money?
Case Study: What if my insurance needs change over time?
Let’s say I visit a financial planner who helps me determine two primary needs for term life insurance:
- Income Replacement – I need $500,000 of coverage for 20 years
- Mortgage Insurance – I need $250,000 of coverage for 10 years
The financial planner sees I own a rental home, which has an outstanding mortgage of $250,000, and it won’t be paid off for 10 years. I don’t want to leave my children an encumbered property, so we need life insurance to cover that.
Based on my income, he also recommends a $500,000 term life insurance policy for 20 years, which will protect my family until I’m retired and the kids are through college and independent (or so we hope!) Now I can start talking to some life insurance agents…
The average insurance agent would recommend I buy a $750,000 policy with a 20 year term, but then I would be over insured the second 10 years, and pay a lot for carrying that $250,000 needed to pay off my home.
By purchasing a 10 year, $250,000 term policy, and also a 20 year, $500,000 term policy, it will reduce my expense by around 15% in the first 10 years, and about 40% afterwards. It also gives me the ability to cancel that 250k policy early if I sell the house. Make sense?
This approach is called “staggering” or “layering” policies.
Real world example: Last year I wrote 3 policies for a husband and 3 policies for his wife, each at $500,000 of coverage. The policies are 10, 20, 30 years in length to insure his children’s college tuition, his mortgage, and his retirement.
The client wanted a total of 3 million of coverage for the next 10 years to make sure his children had money for college if he passed away before they graduated, to pay off the mortgage, and to provide his spouse with income replacement until she reaches retirement age. Once the children graduate, he will not need to insure the cost of their education so the total insurance will drop to 2 million.
The 2 million dollars of coverage will drop to 1 million in 10 years when the house is paid off, and will continue another 10 years until the couple is ready to retire at which point they will no longer need coverage.
These 6 policies were about 40% less expensive than purchasing 2 separate 30 year policies for 1.5 million each and the outcome was the same. The children’s education, the mortgage, and income replacement until retirement age will be insurance for less money.
BOTTOM LINE: Explain to your independent agent why you need life insurance, and hope to accomplish. This is a reoccurring theme! Your agent should be a trusted financial advisor, not a salesman in a call center.
2. Saving With the Company You Didn’t Know Existed
The life insurance company you’ve never heard of is as good as the one which ran 10 TV commercials last night.
A “Big Name” is not necessarily a better company. It generally means they advertise a lot, and the marketing cost is passed down to policyholders.
Trust me … Snoopy, MetLife’s mascot, doesn’t live in that little doghouse, but a beachfront villa in Boca Raton.
There are nearly 1200 highly rated life insurance companies in America, yet most of us can probably name around 10. So other than cost, how do you confirm one is “legit” and will pay your money promptly if you die while insured?
Most life insurance insiders will instruct you to check AM Best’s ratings on-line or by asking your agent, and go with the “A rated” company providing your lowest price. An “A rating” (little difference between (A+, A, A-) means the insurance company has well above the funds necessary to pay future claims and has never failed to pay a valid claim in its history.
Rest assured… life insurance is one of the most heavily regulated industries in America, by both State and Federal governments, and has been since the 1800’s. It’s one of the reasons we elect Insurance Commissioners.
They’re ensuring the strength of one of our most important financial cornerstones. It should reassure you that there’s never been a major carrier go out of business, other than by choice. When this occurs, another insurer, of equal or higher rating, is assigned your policy. This doesn’t change your contract.
This happened to me when First Colony Life was acquired by General Electric in 1996 and became part of Genworth Financial. Nothing changed other than who I wrote my checks to.
BOTTOM LINE: Shop through a reputable independent agent with underwriting experience, and go with their recommendation for an AM Best A-rated carrier offering your best price.
3. Group Insurance Might Be Your BEST Option
Hey, I work in the life insurance industry, so won’t instruct you to go elsewhere to buy coverage, but a consumer savvy with their personal finances will be aware of their options.
The cost of group life insurance, whether through an employer, association, or fraternal group is determined by the average health of members of the group.
In other words, if you work with 20 other people and they are young all in exceptional health, the price of your coverage will be less than if your co-workers are older and in poor health.
If you’re in very good health, it’s better to buy independent life insurance, with lower cost being just one factor. However, if you smoke or have serious health issues group coverage through your employer may be less expensive. In addition, you cannot be denied Group Coverage.
If your health or lifestyle (multiple DUIs, for instance) makes you otherwise uninsurable, group coverage may be your best and only option. Financial advisors normally recommend looking at your group insurance as a supplement to the insurance you acquire independently.
Group plans have drawbacks:
- Rates can change annually
- There may be exclusions for pre-existing conditions
- and you’ll lose it if you change jobs or become disabled.
The biggest problem we see is that many people believe they won’t need life insurance once they retire… and often they do. You can’t carry most group coverage beyond a year after retirement, so applying in your 60’s can be challenging.
Another great reason for buying term life insurance when you’re young and healthy… If you get to the point you don’t need it, simply cancel the policy. Better to be over-insured at an affordable rate in your working years, then under or not insured later when you might be placing your loved ones’ financial future at risk. When we die, we want to be grieved, not blamed for the mess left behind.
BOTTOM LINE: Ask your financial advisor and independent life insurance agent for a cost/benefit analysis for your options, and think long term.
4. “Specialty” Shorter Term Policies
If you’ve looked into life insurance at all, you know that 10 year term is the most affordable life insurance policy type, right? Not so!… there are even shorter terms.
OK, I just instructed you to think “long term”, but when would should short term coverage be appropriate?
Let’s say you’re recently divorced and required to carry life insurance until your youngest is 18 years old. Or, you’re collateralizing a loan with life insurance, and expect to pay the debt off in a few years.
In these cases and other situations, a specialty insurance product, such a “annual renewable” policy or 5 year term policy may be your best value, and easier to obtain, since the insurer’s risk is for a short period of time.
As a result of the 10-year term insurance market being so competitive, you may find this policy being the cheapest. If so, cancel the policy when it’s no longer needed… there are no penalties for cancelling a standard level term policy, and there’s a good chance you’ll receive a pro-rated refund for any unused prepaid time period.
BOTTOM LINE: Explain to your independent agent why you need life insurance, and hope to accomplish. We may not make much commission on this policy, but hope to help your family in the friends in the future.
5. How to Pay Less for the Same Amount of Coverage
Here’s a simple way to save 10-15% or more on life insurance.
Some carriers will allow you to purchase a policy with an annuity payment as the benefit, rather than a lump sum. The most typical life insurance payout is a “lump sum” meaning the entirety of the benefit is paid in one check upon death.
An annuity death benefit, on the other hand, pays an annual or monthly benefit for a set period of time such as 5, 10, or 20 years.
The annuity payment can be a terrific way to provide a lasting benefit for your loved ones, and ensure the funds last for the intended period of time. For those of us with young (or irresponsible) beneficiaries, annuity payments offer a simple way to control your beneficiary’s inheritance, rather than having to set up a trust with distributions rules and spendthrift provisions.
If you’re buying life insurance for income replacement purposes, you’re the perfect candidate to consider a policy with an annuity payout rather than lump sum.
Savings Example:
For example, a 50 year old might pay $43 per month for a 20 year term policy with a $250,000 death benefit. HOWEVER, he might pay $35 per month for the same $250,000 of coverage if that death benefit is to be paid out over 10 years, a 22% savings.
It’s better for the insurance carriers to pay out in this fashion, so they charge you less. Everyone wins.
6. The Saving Power of an Independent Agent
There are 2 types of agents in the life insurance industry:
- Independent agents
- Captive agents
The difference? Local neighborhood agents such as your neighborhood State Farm, Farmers Insurance, or Allstate agent are typically “Captive Agents”.
They have a contract with one big company which advertises to help generate business, and can’t sell through their competitors.
They generally have an office and can generally provide personal service, however, you’re paying a premium. They have the highest overhead… think about which companies run TV commercials every few minutes. Beyond coming to your home and helping you complete an application, there’s little your agent can do for you. They’ll schedule an exam, tell you what your rate is afterwards, and that’s about it. Simple, convenient, but expensive.
An independent agent approaches things differently.
They basically work as a no-fee “broker”, bringing the shopper (you) and a life insurance together. An agent experienced at “field underwriting” will do this by asking you a series of health and lifestyle questions, matching you to the carrier (insurance company) best for your specific profile and what you want to accomplish by being insured.
Important Insider’s Note: It’s illegal for a life insurance agent to charge fees for their “shopping service”. It could cost them their license. As a policy holder, you only pay the insurance company directly for the cost of your insurance, and this cost can’t be marked up or down.
In other words, I can’t give my brother-in-law a discount, and I pay the same rate a guy of same age/health also insured with Genworth pays. The insurance company pays the agent a commission, which is generally comparable between insurers, so there’s little influence for us to “push” one company over another.
As business owners, it’s best for us to recommend a company which will APPROVE your application at your best rate, since we know you can apply elsewhere and cancel our policy. Make sense?
How important is all this extra shopping? It’s not uncommon for us to save clients 50% or more on their life insurance premiums. For instance, A+ rated Prudential (the “own a piece of the rock” company) allows unlimited cigar smoking without triggering a “smokers” rate, whereas other companies give you a “tobacco” rate if you smoke more the 48 cigars a year.
The savings on a long term policy? About 50%.
Another factor we deal with every day is “build”…our height/weight ratio or BMI (Body Mass Index). Some insurance companies want us to look the way we did in high school. Ain’t happening for most of us!
Others are more reasonable…and some even have a sliding scale as we age. (Now that sounds more fair!) For example, a 6-foot tall man who weighs 221 pounds will get the best rate category (preferred plus) with some companies, while others will knock him down to the second or third rate category (preferred or standard plus), resulting in a 10-20% higher premium. Over the course of 20-30 years, this one factor could be the difference of hundreds, if not thousands of dollars. Investing that savings for 20-30 years in S&P Index Fund is going to make a lot more sense.
“Build” is just one of roughly 25 underwriting criteria a quality insurance company will look at.
Every person we speak to is unique…some people take one, two or more medications, have family history or serious health issue themselves, enjoy a nightly cigar (probably a Prudential candidate)….or even in exceptional health, but scuba dive, which could be an issue to some insurers. Keep in mind, the more questions they ask, the better. Why is that? The fewer questions, the higher risk the insurer is assuming. Higher Risk = Higher Cost.
BOTTOM LINE: An experienced independent life insurance agent should be matching you to the carrier best suited for you, your lifestyle and your need for coverage. For example, our agency, JRC Insurance Group impartially shops nearly 50 of the top rated companies. It’s a hassle to shop one company at a time, so why do it? Our clients seem to prefer the “one-stop shopping” approach…and we’ve never been told the 51st company had a better price!
7. Find Your Insurance Company’s “Death Benefit Sweet Spot”
Death benefit “sweet spot”? Sounds like an oxymoron…. but this is one of the best tips for finding affordable life insurance.In the life insurance industry there are price breaks (they can’t call them discounts) at certain levels, and they vary by company.
Most term life is sold for men and women under 60 with a minimum “face value” (death benefit) of $100,000. You may have determined you “need” $75,000, but may pay less for a $100,000 policy since there may be hundreds of companies selling at that level, and only a handful selling $75,000 policies.
As a rule of thumb, most policies offer best rates at quarter million dollar increments…250k, 500k, 750k and 1000k. That’s where you’ll see them advertise, and they’ll make adjustments to be competitive. The cost per thousand also generally drops at policies above $1 million.
There are exceptions to the quarter million increment “rule”. ING’s life insurance division, Reliastar, offers their first price break at $200,000…often giving them the edge at this death benefit. Your age, health, and overall risk profile is usually the determining factor, but, if you’re like me, you always want your best value. And practically speaking, we’ve never had a grieving widow tell us she was receiving too much money, from her husband’s life insurance, only “not enough”!
Bottom Line: Work with an experience agent who is not an order taker…they’ll know the price break levels and provide comparisons. It may be worth spending a few more dollars monthly (or even a few dollars less!) for a policy that will provide significantly more benefit to your family if you die. A good agent will share their knowledge of the industry, including pricing structures, to help you obtain the most bang for your buck.
This post first appeared on JRC Insurance Group: Term Life Insurance Quotes, please read the originial post: here
