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How to Save Money on Life Insurance

Written by Nickel - 16 Comments

Life insurance is an incredibly important financial product. Unfortunately, it’s also relatively costly. With that in mind, I thought I’d put together some tips for saving money when you’re in the market for a life insurance policy.

Get healthy

Any insurer worth their salt will require a physical as part of the underwriting process. The good news is that it’s easy — they’ll send someone out to your home or office. Smoking, obesity, high blood pressure, etc. will all result in significantly higher premiums. So… Leading a generally healthy lifestyle will save you a lot of money on your life insurance premiums.

Buy it only if you need it

Life insurance makes the most sense for people with significant financial responsibilities. If others depend on you for financial support, then you most likely need it. However, if you’re young, unmarried, and childless, you may be able to skip it and bank the savings.

Buy term and invest the difference

The simplest and cheapest form of life insurance is a term policy. While insurance policies with a cash value, such as whole life or universal life, can make sense in certain circumstances, you can save a good bit of money by foregoing the investment component, buying a term policy, and investing your savings on your own.

Don’t buy more than you need

The more coverage you buy, the more it will cost. You don’t want to go cheap and leave your loved ones high and dry, but it also doesn’t make sense to buy more than you really need. Just don’t forget to factor in the effects of inflation.

Pay attention to your payment terms

Most insurers allow you to pay monthly, quarterly, semi-annually, or annually. While paying monthly might sound better than coughing up a year’s worth of premiums in advance, keep in mind that many companies charge for the privilege.

Shop around

The premiums on identical policies from different issuers can vary widely. Thus, it pays to shop around. Either enlist the help of a reputable insurance agent or do what we did — poke around using a life insurance company finder tool such as the one at FiveCentNickel. Just don’t buy from a company on the brink of bankruptcy in the interest of saving a few bucks.

So there you have it… Six simple tips for saving money on life insurance. If you have any further suggestions, please be sure share them in the comments.

And if you’re generally reviewing your insurance policies, see our articles on how to save money on car insurance, how to save money on homeowners insurance and how to save money on health insurance.

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Published on March 31st, 2009
Modified on February 24th, 2010 - 16 Comments
Filed under: Frugality, Insurance

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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16 Responses to “How to Save Money on Life Insurance”

  1. 1
    RJ Weiss Says:

    Great tips.

    The only thing I would add is taking advantage of any life insurance without underwriting. A lot of the time your job will offer you up to $50,000 without having you get a physical. This is often the cheapest route to go.

  2. 2
    Baker @ ManVsDebt Says:

    Short, Sweet, and effective. I have to admit I desperately need to add (just a small amount) of life insurance to our financial plans. We don’t own our own house, but do still have student loan debt and a 1 year old daughter. It would be nice to pay for funeral, pay off debt, and fund college if one of us were to pass away.

  3. 3
    FekketCantenel Says:

    An extremely timely post. Yesterday, I was drafting a letter for my lawyer boss to a man who’d just lost his stepdaughter. The woman had credit life insurance and therefore could pay off all her debts (except one, which was in question, hence the lawyer). I thought to myself that this is a fascinating and useful thing; if she hadn’t had it, who would get stuck paying her bills?

    I go through AAA for all my insurance, so I did a quote on their website and came up with about $150/year for myself for a ten-year term and $500,000 payout. Half of it would go to my future husband; a huge chunk would go to my younger, college-bound brother, with a small bit going to my best friend, who has some massive debts to pay off. When I started thinking about how much more comfortable they would be with that money, I thought it might be a good thing to die. *rolls eyes*

    It occurred to me to think of that $150 as wasted every year that I don’t die, but then, I’ve been pretty worried lately about what will happen to my family when I’m not around to support them. If I can pay $150 a year to worry less, I sure as heck will.

  4. 4
    Nickel Says:

    FekketCantenel: While it worked out in this case, it’s probably better to have life insurance per se than to have credit life insurance (or mortgage life insurance, etc.). The rates will be much better, and you can simply carry enough to pay off all debts plus whatever other obligations you have.

  5. 5
    Sarah Says:

    Since life insurance costs so little ($50-300 per year) for such peace of mind, I don’t get why so many people forgo it. I have $200,000 and my husband has $50,000 through work. Once we start trying to have kids, we’ll up his to $500,000 or so.
    I’ve been unable to find any good calculaters to help us figure out exactly how much we really will need for him so I guess we’ll just go with $500,000 or so. It’s a bit hit or miss!!!
    Great post!

  6. 6
    Noah Says:

    @ Sarah,
    A general rule of thumb is 10x the income you want to replace. In this manner, if that person were to pass, you could invest (earning 10% or more) the proceeds and pull 10% off for the rest of your life; hence, replacing the lost income.

  7. 7
    mapgirl Says:

    Sarah – Single people like me generally forgo life insurance beyond what our companies provide, simply because we aren’t trying to leave a home for our spouse or college educations for children. Most of us singletons just don’t need it.

    That being said, this post is extremely timely because in the event of a tragic accident, I have parents that still need me to support them in retirement. I just talked to someone last night about universal life vs term insurance and I’m all hot to trot and buy extra insurance for myself very soon.

    Thanks Nickel!

  8. 8
    MITBeta @ Don't Feed the Alligators Says:

    Quick tip: Don’t rely on workplace insurance. You could lose it tomorrow if you lose your job.

  9. 9
    Korey Says:

    I also need to buy life insurance within the next year, as I’m getting married soon and am also worried about aging parents. One major concern I have is the quality of the insurer — if I had my preference, I would buy life insurance from Berkshire Hathaway, as they strike me as the safest choice. But everything I read says that term life insurance is the best investment, and poking around on the BH site, I don’t see any way to buy term life insurance from a BH subsidiary. Am I missing something or do they only offer non-term life insurance products?

  10. 10
    Michael @ The Life Insurance Insider Says:

    Good points.

    I wouldn’t advise waiting until you are healthy to get coverage. If you need the coverage get the insurance at the rates you qualify for now. Then you can work to improve your health status and apply for lower priced insurance in a few years. You don’t want something to happen to you while you are uncovered and waiting for lower rates.

  11. 11
    Nickel Says:

    Yeah, the point there wasn’t to wait until you get healthy, but rather to highlight the fact that the healthier you are, the lower your premiums will be.

  12. 12
    GM Says:

    Agree with the points above.

    Getting a 30 year term when you are healthy is a great cheap option. Another insurance is long term care insurance. Planners advice that people in their 50s should look at this, but if you have health issues you are better off buying this earlier than later when coverage may be denied.

    I would say that looking at one’s parents health would be a rough barometer to chart our future health issues after discounting any obvious conditions like smoking etc. So one can prepare with a little foresight.

  13. 13
    RAJEEV SINGH Says:

    Not buying an insurance to save money is not a very smart thing to do. Insurance is a must for everyone and should not be done away with. However, one SHOULD NOT buy anything other than term plan. I agree with buy term and invest the rest policy as far as insurance is concerned.

  14. 14
    DDFD at DivorcedDadFrugalDad Says:

    Good review!

    I would point out that term is cheap when you are young, but is super expensive later on in life when you really need it. Most people should start with term, but work at converting it to cash value, permanent as soon as possible.

  15. 15
    MWB Says:

    I did not find this article helpful. I’m a big believer of everyone needs life insurance. You insure your home, your car and even your phone, so why not your life. Life insurance is not only meant for when you die. It is also a great tool for retirement purposes. (I recommend reading “Tax Free Retirement by Patrick Kelly” you will learn all there is to know)

    And for people that advice you, telling you buy term and invest the difference…WOW is all I can say. That is the worst thing you can do. What guarantees do you have that your investments will bring forth any return. We all have learned from the misfortunes of those who lost their life worth of savings when the economy crashes. I’m not saying don’t invest your money at all but I’m compelling you to be smart about it. Term insurance is great but the advantage younger people have when buying whole life is that it is much cheap for them when they are younger that it would be in the future. My recommendation is to have a combination of both types of insurance.

    Also, when you are thinking of retirement, the only way you can avoid taxes is when you invest your money in yourself on your life insurance. Most times in Universal Life where you have a guarantee 4% or 5% return.

    And for the person above that asked how to best calculate just how much life insurance you need, you must first ask yourself, what you need it for and add it all up. (You add all the household income, your bills and responsibilities, desires to pay for your kids’ school, help mom & dad retire) you then will be able to have a general idea of just how much you need.

    Hope this bit of info helped.

  16. 16
    Jeff Rose Says:

    It definitely pays to get an experienced independent agent, especially if you have some sort of high condition. The ability for that agent to shop around at multiple carriers could save the person hundreds of dollars per year.

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