Life catches up with you fast. When you are young and just out of school, you are not thinking about life insurance. You probably consider yourself invincible. And the actuarial tables at the life insurance company think the same thing. Which is why buying life insurance at 22 is such a great way to save on your premiums.
That is pretty unrealistic, though. No one really thinks about buying life insurance at 22. Life insurance comes up when you have a mortgage, kids and multiple responsibilities. The potential for financial ruin if a spouse dies is high. So when you start to shop for life insurance, you are most likely in your 30s or 40s. The ways to save on your premiums are not as great, but they do exist.
When you do your research on how to save on your premiums, you can bank quite a bit of savings. That money that you save can be reinvested somewhere else and you can create an even larger safety net for your family.
BackDate Your Life Insurance
This one is a little tough to figure out, so listen closely. Let’s say that you are 38 and a half. If you go shopping for life insurance and you want to buy a $500,000 policy, chances are that the company will consider you to be 39, for the purposes of pricing your policy. That means that you could be paying about $800 per year, instead of $700 per year as a 38 year old. And that premium is locked for the next couple of decades. Paying $100 more per year than you need to would take about $2000 out of your wallet.
But if you investigate further, your insurance provider might let you backdate your policy to make you 38, and you would just have to pay an upfront fee of $150. That could net you the lower premium, which puts a couple grand back in your pocket over the next 20 years.
Pay Annually Instead of Monthly
Instead of paying a monthly premium you can pay your premium all upfront at some point in the year. That is a great way to save on your premiums. This works for a couple of reasons for your insurance company. You can save them money, because they are not spending as much processing monthly payments from you. And they can use the money now, instead of waiting for your check each month. You can save on your premiums as much as 4-5% per month.
Don’t Get More Than You Need
When you work with an insurance broker, their priority is always going to be to sell you more. Overinsure you. Why? Because of commissions. The more insurance they sell, the more money they make. That pits their interest against yours. Because you want to get the best coverage that you can get, but you want to save on your premiums.
A good formula to keep in mind is to look at your income, assets minus your debt and your age. Think about how much money your family would need on an annual basis in order to survive. The long-term income needs for your family is the highest priority. Find a good insurance calculator to help you figure out all that.