Saving Money on Term Insurance

Day after day, we hear more bad news about the insurance industry and the economic downturn. American families are being squeezed by high unemployment, stagnant salaries, falling home prices, loses in retirement accounts and the tightening of credit. How does this affect your life insurance planning? The short answer, saving money by getting the best price on items like life insurance is as important as ever. Here are some tips for making sure you get the best price with a reputable insurance company.

Overview on Life Insurance

Term insurance is considered the most cost effective way of protecting your family. Permanent, whole or universal policies can cost 5 to 12 times more in premiums for the benefit of having life-time coverage and cash value. But ask yourself how long you will really need life insurance. Most families won't need life insurance once their children graduate from school, their home is almost paid off and they have more money in their retirement account. In reality, life insurance protects your family from the unexpected lose of your income when they are financial vulnerable. That need may dissipate over time.

Fully underwritten term life insurance (a policy that requires a medical exam and full underwriting including checking medical records, driving record and more) offer the lowest prices. No medical exam policies are convenient since there is no medical exam and you may get your policy in minutes or days. But you pay more for that convenience.

The financial strength rating of the insurance company is one more thing to consider when buying a policy. It is recommended you stay away from companies with AM Best ratings below an "A".

Shop around

Term life insurance is a very competitive market and has become more so over the past decade. Insurance companies have been lowering rates yearly. Americans are living longer, underwriting has become more sophisticated and the Internet has made it easier to comparison shop, forcing insurance companies to compete for your business.

Insurance companies will place you in one of 15 or so rate classification. The best rate, many times referred to as Preferred Plus rates, is for the healthiest individuals with no other ailments or factors that affect their rate adversely. Believe it or not, many factors affect your rate including cholesterol, family history (death or disease in your immediate family), medication, dangerous hobbies (like skydiving and private pilots) and your driving record. However, not all insurance companies do treat these factors the same. Some are more lenient and can offer you better rates. That's why it's important to work with an insurance expert that can compare the guidelines of different companies to offer you the best rate.

Online quoting services allow consumers to compare rates from multiple companies and find the best price. Two decades ago, you may have gone to an agent who would offer you a policy from the insurance company who they were affiliated with or the company that paid the highest commission. Now, you should use the power of the Internet to comparison shop. Some of the quoting services also have experience agents that can guide you through the entire process. One such site is ReliaQuote.com (www.reliaquote.com).

Is Your Current Policy the Best One for You?

As mentioned above, pricing for term insurance has fallen considerably over the years. If you have owned your policy for a few years, it may be worth shopping your policy. Even though you're older, the rates may have come down enough so that you can still save money.

When you bought your policy, you may not have gotten the best rate for a number of reasons. If those reasons have changed or your health has improved, it's time to reevaluate our policy. If you have stopped smoking (for at least 12 months), lost weight, lowered your cholesterol or blood pressure or improved your driving record, you may re-qualify for a less expensive rate. There are approximately 15 rate classifications for non-smokers and smokers (non-smokers being significantly less expensive). If you can qualify for a better rate classification based on your improved health condition, you can save money on your policy.

One other factor to keep in mind is that the term life insurance marketplace is an evolving market. There are over 2000 life insurance companies in the US. Not all of them compete in the term life market. But every year, insurance companies decide to enter the term life market by offering competitive rates and other companies decide to exit the market by raising rates. When an insurance company enters the term life market, they may offer a competitive advantage for some ailments or conditions that may be a benefit to you. For example, COMPANY X may have looser underwriting guidelines for family history. Most insurance companies will penalize you by not offer the best rate class if either one of your parents died or was diagnosed with cancer prior to age 60. If COMPANY X does not factoring in cancer family history, you may be able to qualify for a less expensive rate with a new policy with that carrier.

If you do decide to change your policy to save money, never cancel your existing policy before your new policy goes into force. Also keep in mind that you may lose some advantages of keeping your old policy. The most important one is that your life insurance is contestable in the first two years. If your old policy is older than 2 years, you are outside of the contestability period. By buying a new policy, if you do die and your family files a death claim during the first two years, the insurance company will take a closer look at your death claim. There may be other difference in your policy that you should consult with a licensed insurance agent.

Other Insider Tips

There is such a thing as a bulk savings in term life insurance. The more you buy, the less expensive the rate you pay per thousand dollars of coverage. This "band" savings may occur if you buy $250,000, $500,000 or $1,000,000. Each insurance company may have different band savings, so ask your insurance agents what the bands are for you company you are interested in. Bands can cause abnormalities in prices. For example, it may cost LESS to buy $250,000 of coverage than it would to buy $225,000.

One other way to pay less for your insurance is to pay the annual premium, if you can afford it. Insurance companies will charge a fee for paying any other payment frequency.

When times are tough and tightening the financial budget is a necessity, looking at your term life insurance plan more closely may lend itself to savings. If you do your homework online and work with an experienced, trustworthy agent (either face to face or through an online brokerage) that takes your best interest at heart, you may be able to find the best policy for you and save money. ©2008, ReliaQuote Insurance Services, LLC