Cost of Term Life Insurance? PLUS — 5 Cost Saving Tips

This post on term life insurance is written by Chris Huntley, who is a licensed life insurance agent in 48 states. He is director of marketing at JRC Insurance Group and blogs about life insurance at InsuranceBlogByChris.com.

The two most common questions people ask me as a life insurance agent are:

“How much does term life insurance cost?” and,

“How can I save money on a term life policy?”

I have the answers to both questions, including some convenient sample term life insurance quotes, and the top five ways you can save money on term life insurance.

How Insurers Rate You for Term Life Insurance

All life insurers use underwriters to evaluate and rate you for a premium. The first thing you need to know is that not all insurers are the same.

Insurance companies can vary significantly in what they will charge you.

Why?

Well, it’s simple really. Some companies are much more lenient than other companies when it comes to various health issues such as how you are rated for diabetes, for example.

There are a multiple number of factors that life insurers take into account when deciding how you are rated and how much they will charge you for a premium. Let’s remove the mystery and consider the most important rating factors used by a life insurance underwriter.

What affects the cost of your term life insurance policy? The main rating factors include:

• Your age – Insurance becomes increasingly more expensive as you age.
• Gender – Women have a longer life expectancy than men and are charged less.
• Health – The healthier you are — the cheaper the cost of insurance.
• Height and Weight – Obesity has many inherent health risks so shedding pounds helps.
• Smoking – Speaks for itself.
• Occupation and Hobbies – High risk occupations or hobbies can put you at more of a risk.
• Family History – Genetics can have a significant affect in passing along undesirable health issues or lifestyle habits.

Sample Term Life Insurance Quotes

If you are wondering how much term life insurance costs, here a few sample quotes for both men and women. The sample is for a 20 year term policy for a $250,000 policy and for a person who would receive a “Preferred – Non Smoker” Rating.

MALES                                             FEMALES

(Disclaimer – Quotes are good as Feb. 7, 2015)

5 Ways to Save on Term Life Insurance

Here are five ways you save a ton of money when buying term life insurance:

Tip 1. Layering or Staggering Multiple Policies

Many people tend to think they should go out and buy one large policy for a long term such as 30 years for example. But if you really analyze your overall life insurance needs, you might not need all that coverage for such a long time.

Here’s a simple example:

Suppose you want a policy to cover income replacement, your mortgage, and your children’s college tuition. You go out and buy a term policy for $500,000 for 30 years.

You don’t really need to do that. Consider buying 3 separate policies instead.

You could get a 30 year term policy at $250,000 to cover your income replacement, a 15 or 20 year $150,000 policy to cover your mortgage, and a third policy for a 10 year term for $100,000 to cover you children’s tuition.

By splitting up some of the coverage into shorter terms, you’ll pay less than covering the entire $500K for 30 years.

The latter two policies you can simply cancel whenever your mortgage is paid or your children graduate. Either way you save money.

Tip 2. Choose an Annuity Payment Over Lump Sum

Just about every life insurer advertises that you will receive a lump sum when they pay on a claim. What they don’t tell you is that your beneficiary can receive the life insurance proceeds as an annuity instead. This is not offered by every carrier.

What does an annuity payment mean?

It simply means that your beneficiary will receive the life insurance payment either as a monthly payment or as a set amount over a number of years.

Choosing to take the payout as an annuity on a term policy is cheaper than buying a policy that pays the proceeds as a single lump sum.

Tip 3. Save on How Much Life Insurance you Buy

This is something many people don’t know about. Many insurers can offer you a savings for specific amounts of insurance. You might you only want a policy to cover you for $175,000, for example. But, the insurer may very likely give you a “price break” if you opt for $200,000 instead.

The reason is that most insurers are very competitive for set amounts such as $200,000 (applies to only a very few carriers), and especially for $250,000, $500,000 and $750,000.

If you think you need some other amount, it might end up costing you more as opposed to changing your coverage for one of these highly competitive “sweet spots.”

Tip 4. Buy a “Specialty” Shorter Term Policy

Ask most agents for a 1 year renewable policy, and they may look at you like you have a third head.

They’ll probably try to sell you 10 year term instead, promising that in the long run, it will be cheaper.   

The thing is, sometimes a person might only want a term life insurance policy for a specific reason and only for a very short time. One example might be that you have just divorced from a spouse and only want coverage until your youngest child turns 18.

Another reason could be that you need a short term to cover a business loan or SSL loan, and intend to have it paid in just a few years.

You might have the idea that the shortest term you can get is a 10 year term and that’s all you can choose. Not so, because you can also get “specialty” term life insurance products such as a1 year renewable term, or even a 5 year term policy.

Tip 5. Always Use an Independent Agent To Buy Term Insurance

Many people think all life insurance agents are the same. That’s not true because there are 2 types of life insurance agents. The first is a “captive” agent and these agents only sell for one company and can’t apply to competitors.

An “independent” agent can access dozens of different companies and find not the only the most suitable term policy for your situation but also the at the most affordable rates. This is especially true if you have a health issue, or if you smoke.

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