However, if you're a little bit older then "life happens." You might have found yourself with a significant-other and a wiggling, giggling, screaming bundle(s) of joy, more monthly payments than you ever thought you could manage, and far far less sleep then you have ever experienced.
Life insurance is the key to keeping your beloved and prodgeny from having to move into the cardboard box under the freeway, or into mom's basement. So if you do kick the can and haven't yet made your fortune and glory then this post is for you!
Ideally if you could do it, you would buy a policy that would pay out enough to keep the family in Bugatti Veyrons, but if you're a starving artist/low income type like me, then keep reading to provide your family with the coverage they need to keep them off the streets.
How to really, really save money on life insurance.There are a lot of articles on the internet on how to save money on life insurance. Heck, I've written a few of them myself. Yet when I came across The Starving Artist's blog, I saw the opportunity to present some tips for those seeking to really take this over the top.
Take the example of a starving artist with a family. We'll assume that the need for life insurance exists with a few kids running around and probably car payments, daycare expenses, and all the other things that come with the young family life. And we're going to further assume that daily cash outflow is limited to such an extent that we need to chop anything we can to reduce expenses today - even if that's at the expense of additional costs in the future.
With those assumptions in place, here's some tips to get the absolute lowest life insurance premiums today.
- Find a broker that shops more companies. This sounds obvious, but most agents and brokers only work with a few companies. If you can find a broker that has 15-20 companies (pretty much all the competitive companies in Canada) you increase your chances of finding a lesser-known company that's cheaper than the brand name companies. Example, 30 year old couple, $500,000 of 10 year term life insurance each. The least expensive companies are Transamerica, Equitable, Wawanesa, UL Mutual, SSQ, Foresters, Western Life and Desjardins with premiums starting at $40.50/month and all from smaller companies you may not have heard of. Canada Life, Manulife, Great West Life and RBC have premiums ranging from $46 to $47/month. Sticking with the brands in this case will cost you over $70/year.
- Corollary to 1, don't care about company. All Canadian companies are financially strong, well backed by the other companies and very well monitored and regulated by the government. Neither strength nor cheapest premiums are well correlated to company size; on any given day the cheapest premiums could be from a small company nobody's heard of, or the largest company in Canada.
- Watch your age change. Insurance companies don't use your birthday, they use the middle of the year or your 'nearest birthday'. In the life insurance world you become a year older six months earlier than you'd expect. So if you're going to apply, apply sooner rather than later to avoid the surprise 'insurance birthday' party.
- Disclose everything during the medical exam. As most people are fairly reserved about their medical information this advice is a bit counter-intuitive. However you'll find you'll get better decisions out of the insurance company if they have an application filled with volumes of details about every little thing that's every happened to you. It's as easy as underwriters feel more comfortable giving better rates if the application is pages long rather than a brief synopsis. Don't leave them guessing and having to assume the worst case scenario.
- Buy a shorter period of term. Life insurance premium guarantees come in different time periods - 10 years, 20 years, or your entire lifetime. If you're cutting costs today, then go with a shorter term. For most of us, that will be 10 year term. In doing so, you're deferring paying higher premiums until later when you're 10 years older. However I did a study on this a while ago and it turns out that buying 10 year term life insurance every 10 years (and taking the associated medical exam) is actually cheaper than locking in your premiums for longer terms. Again, this is counter-intuitive. Careful though - if you take this approach, make sure your term policy has a feature called 'conversion' that allows you to jump to permanent insurance without a medical exam. (aside: some companies actually have a mini-conversion where you can jump from 10 year term to 20 or 30 year term in the future if your needs change).
- Quit smoking. And while you're waiting for a year to pass (required for insurance companies to consider you at nonsmoking premiums) then go with a 10 year term and lock into a longer period after you've been tobacco free for a full year.
- Conversely, cut your insurance amount last. The first thing most consumers want to do to reduce premiums is lower the amount of insurance. In fact, this isn't the first thing you should do, it's the last thing you should do. If you die (which is what you're preparing for when you buy life insurance) the only thing that matters is how much insurance you had. So make sure you have enough. If the 'right amount, right type, right company' doesn't fit your budget, ask your broker to chop everything else they can before they cut the amount of life insurance.
- Avoid no-medical exam life insurance. The TV commercials show you how easy it is to apply - and that's true. They seem to have neglected to mention how the ease of application normally comes with higher premiums and reduced benefits. No medical exam life insurance policies should be used as a last resort. Take a medical exam, prove your health, and get the best premiums possible.