7 Tips for Paying Less for Your Life Insurance

If you’ve never given much thought to your life insurance, there’s a chance you’re paying too much. Here are 7 tips that could help you save thousands on your life insurance costs.

1. Your excellent health could qualify you for discounted rates

Most insurers can offer discounted life insurance rates to applicants with a combination of much better than average medical test results, no family history of serious diseases, and healthy lifestyle choices. Commonly referred to as Preferred or Elite, these lower rates are subject to strict underwriting rules. As a result, most people can’t qualify; but if you do, the savings can be significant.

2. Take advantage of volume discounts

With most insurers, the more you buy, the less you pay per thousand of coverage purchased. Most insurers will offer these lower rates when you’ve exceeded specific face amount tiers such as $250,000 $500,000, $750,000 or $1 million and more. Purchasing smaller amounts of coverage with different insurers could mean you are missing out on significant rate savings.

3. Pay your premiums annually 

Life insurers typically charge an extra fee to customers who choose to pay their premiums on a monthly basis, rather than annually. This fee is needed to cover the financial impact of not having all of your premiums in advance. You can expect to pay at least 8% more if you choose to pay monthly.

If your reason for opting for a monthly payment is the conveniences of a pre-authorized withdraw from your bank, you should be aware that some insurers will allow you to make this same arrangement for an annual premium payment at no additional cost.

4. Pay attention to your lifetime cost, especially with Term Life insurance

Most term life policies have premiums that increase at regular intervals to reflect your increasing risk to the insurer as you get older. A very common example is 10 Year Renewable Term Life insurance (Term 10). These policies offer a premium that is guaranteed not to increase for the first 10 years, at which time it will renew at a higher premium for another 10 years. While these policies typically offer very affordable initial premiums, the cost can increase dramatically.

Based on a recent survey of Canadian insurers, a male nonsmoker, age 35, who purchases $500,000 of Term 10 from the least expensive insurer, will pay $275 annually for the first 10 years. At age 45, the premiums jump to $1,495 per year (over 5 times more). At age 55, the premium becomes $3,570, and at age 65, he will be asked to pay $10,450 per year.

If you own one of these contracts and are still insurable, you may be able to avoid most of this increase by applying for a new policy at renewal. But if your health changes, you could be held hostage to massive premiums that could force you to reduce or cancel your coverage.

It’s important to know that not all term life policies have premiums that increase as significantly as the example. When considering a Term Life insurance purchase, focus less on the initial cost and more on how long you need the protection and the total premiums you will pay during that time. You should also consider other life insurance options (see the next tip).

5. Consider Permanent Life insurance

Permanent Life (also called Whole Life) insurance provides you with lifetime coverage at a guaranteed premium cost that never increases. Because the insurer can’t increase your premium to reflect your risk as you get older, they need to charge a high premium in the early years to offset your cost in the future.

When simply comparing initial premiums, Permanent Life is considerably more expensive than an equivalent amount of term life protection. However, that savings for term life is lost as premiums increase over time. Eventually, the Permanent Life policy can end up costing significantly less to own.

6. Shop around 

When it comes to buying life insurance, you have lots of choices from many reputable insurers. Lawyers also have the added option of purchasing insurance through The Canadian Bar Insurance Association. It’s a competitive market, so depending on your age and needs, there can be significant cost differences between policies. It always pays to compare.

7. Avoid these policies

Here’s a list of life insurance policies that I think most people should avoid as there may be superior alternatives available at a lower cost.

• Mortgage life insurance
• Optional extra life insurance through an employee benefits plan
• Life insurance sold direct through the mail or on-line
• Life insurance sold without the need to prove you are in good health (guaranteed issue)

Please note that my advice is not intended to replace that of a qualified insurance professional who has reviewed your specific insurance needs. For more information about life insurance or other insurance products, The Canadian Bar Insurance Association offers several helpful tools and articles in their website insurance education centre. Visit www.barinsurance.com.