Low Cost Life Insurance in 5 Easy Steps

admin — Tue, 26 Jan 2010 08:37:39 +0000

1. Understand the purpose of life insurance.

The purpose of life insurance is to replace your income if you die before being able to build up sufficient financial assets. So, if you have someone depending on you to earn a certain amount of income during a period of time, life insurance is the way to go. Let’s say you are a young, 30-year-old husband and your wife is a stay-at-home mom. You have little or no savings, small children, a mortgage, and some bills as a result of buying furniture and appliances to establish a household. If you were to die, your family would be financially devastated. You are a prime candidate for life insurance. So, instead of buying a whole life policy, you take out a less expensive 30-year term policy. You invest the difference between what a whole life policy would have cost, and what your premium is for the term policy. Let us fast forward. You are now 60 years old. The children have grown up and have finished school, the mortgage and other bills have been paid off. For the past 30 years you have been making regular investments, which have grown to a substantial nest egg. At this point, there is no further need for life insurance. The insurance policy that you took out 30 years ago has enabled you to buy time by protecting your family while you were accumulating the nest egg.

On the other hand, if you are single with no dependents or retired and living on investments or retirement income, you probably do not need life insurance.

2. Keep insurance separate from investments.

One reason for consumer’s confusion about life insurance is that some companies combine investments with life insurance. In order to do a proper comparison, it makes sense to keep the two separate, since they are designed to meet two distinct needs. When we purchase most items we consider the cost per unit. For example, when we purchase ground beef we look at the cost per pound, when we purchase gasoline we look at the price per gallon. When we are considering term life insurance, we should look at the cost per unit. The way to evaluate term life insurance is to determine the cost per $1000 of coverage.

In order to do that, you divide the annual premium you are quoted by the amount of coverage you have determined that you need. For example, if you decide that you need $700,000 in coverage and the premium you are quoted is $3700, the cost per $1000 of coverage would be $5. 28 ($3700 ÷ $700).

Using this method, you are now ready to compare prices without getting into the “mumbo jumbo” about projected rate of return on your investment and building cash value and other terms that tend to distort what you are really trying to do – protect your family in case you die before you accumulate adequate assets.

3. Buy term insurance.

There are two kinds of policies: Term and whole life (or permanent or cash value). Term is pure insurance for a set number of years, 10, 15, 20, or 30 and it only pays a death benefit. Whole life, on the other hand, may provide interest and dividends. Since there are no dividends or interest involved, term insurance is generally less expensive than whole life.

So, the husband in Tip # 1 would be better served to buy the appropriate amount of term insurance to protect his family during their most vulnerable period. He could invest the savings he realized by not buying whole life insurance and into something like a stock mutual fund that will enable him to be financially secure later in life.

4. Ask for a change in rating class.

Let’s say you took out a policy four years ago right after you learned that you had high blood pressure. The company did a physical examination and, because of your high blood pressure, they placed you in a rating class with a higher premium than you would have been charged had you not had high blood pressure. Let’s further say that during the last four years you have taken control of your health, lost weight, exercised, taken your medication and now your blood pressure is normal. Under those circumstances, you can go back and ask them to review your medical status and put you in a rating class with a lower premium.

5. Get free life insurance quotes from top life insurance companies.

There are over 1500 life insurance companies. Premiums vary by hundreds of dollars for the same amount of coverage. For example, for $100,000 worth of term life insurance for a 35- year-old male, I recently found annual premiums that ranged from $886 to $2194.

Get instant life insurance quotes at http://www. howtocutexpenses. com

With over 20 years of experience as a personal financial educator and counselor, Vernon Williams has developed in depth knowledge of what it takes to achieve financial success. Today, he is a sought after trainer and speaker by organizations from both the public and private sector. He is the author of 425 Ways to Stretch Your $$$$ and 3 Rules that Guarantee Financial Success. Visit Vernon at http://www. howtocutyourexpenses. com

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Low Cost Life Insurance in 5 Easy Steps