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Depending on your age, health, and other factors, life insurance can get pretty expensive. Here are some ways to reign in your costs when buying a policy.
If you’re currently in the market for life insurance, you may have noticed that competition in the sector and a number of other factors have led to very low rates. Still, depending on your health and age, you may still find the costs somewhat prohibitive. Let’s take a look at some ways to bring the costs down, no matter your personal situation.
There are certain factors that go into the cost of life insurance that are beyond your control. They include age, gender and overall health, although of course the latter is at least somewhat determined by your lifestyle choices. Still, there are some factors in your control, and these are the factors you’ll want to try and take advantage of to secure the best policy at the lowest possible cost.
The Big One: Health
Your current health condition and health history are the first thing a life insurance company will want to measure, of course, because this is likely to be a big determinant of your longevity. Life insurance providers have deep expertise in determining which health conditions present the greatest risks, and they apply premium amounts accordingly. But each company may place different emphasis on which conditions present the most risk to them. Why? It can be based, in part, on the number of people with certain conditions that are already part of the insurer’s pool.
This is why it’s a very good idea to shop around for a life insurance policy rather than take the first policy that’s offered to you. For a patient with type 1 or type 2 diabetes, for example, the condition is going to make obtaining life insurance significantly more expensive. But
more expensive can vary widely from insurer to insurer. And if you don’t have diabetes, but you do have high cholesterol or if you are a smoker, you can address those health factors either prior to obtaining life insurance, or even after you’ve secured life insurance. For example, if you’ve recently lost a lot of weight or quit smoking, talk to your life insurance provider about whether you could see a reduction in your premiums.
In an ideal world, you’d reduce your risk factors prior to securing a life insurance policy, but if you aren’t currently carrying life insurance, don’t use the “I’ll be healthier next year” excuse to avoid securing it.
If you’ve never sought life insurance before, you may be surprised by how detailed the questionnaires and vetting process are. Life insurance companies, for example, will want to know if you engage in any risky behaviors, such as skydiving or driving a motorcycle, and they’ll even consider your driving record and whether your occupation puts you at greater risk of harm—unlikely to be a big factor for a dentist. Still, if your hobbies may cost you more, you’re better off admitting to them upfront anyway or just curtailing them. Lying on a life insurance application makes most policies moot.
How much is enough?
You’ll certainly pay too much for life insurance if you secure too much coverage. How much is too much? You won’t know until you do a thorough needs assessment, which should include an in-depth review of your current financial situation, your short- and long-term financial goals, family finances and needs, and then considering those factors alongside what your family would need should you no longer be there to provide income.
Sounds simple enough, right? Perhaps. But there are so many variables at play here that it might be worth it to talk to a financial advisor or certified financial planner—many of whom are intimately familiar with life insurance products.
For example, are you aware that insurance premiums are often discounted at different coverage thresholds, such as a $1 million policy? In other words, a $750,000 policy might not only be a quarter of a million dollars less, it may also cost about the same, because you typically see premium breaks at quarter million dollar intervals. Again, shop around a bit.
One note we must always mention when talking about life insurance: beyond cost, consider also the claims-paying ability of the company. That’s legalese, but what it means is that Newfangled Trust may be shiny and new, but that doesn’t necessarily mean it will be around to pay a claim when you need it. Look into any life insurance provider’s history, profitability, and future prospects.