Low Cost Term Life Insurance – We All Want It, This Is How You Get It
Term life insurance is the most important and expensive type of insurance most people carry. It protects you against the financial impact of premature death, saving your beneficiaries from being burdened with that responsibility. While it's not always financially possible to buy term life insurance or keep it continuously valid, there are ways to save money.
There are two ways to save money on term life insurance. One way is to buy a policy with lower death benefit. The other is to maximize the amount of coverage you can afford for the dollar amount you would like to have in the event of death.
The death benefit can be increased by decreasing the effective premium and/or by using a higher level of insurance, but there will always be a limit on how much you can save by decreasing or increasing that premium. There are more options in order to increase coverage vs. increasing premiums but, as expected, those options will cost more money.
The most obvious way to decrease the cost of term life insurance is to get a policy with a lower death benefit. I told you it wasn't going to be easy, though. A big drawback with this strategy is that you have to be prepared for your beneficiaries to handle more than just the mortgage and funeral costs if you die prematurely.
You have to keep in mind that if your beneficiaries are financially depended on you, they're going to need enough money from your policy's death benefit not only for funeral costs and your final expenses, but also for all living expenses plus some allowance for any kind of debt or repair work that might be left at the time of your death.
Another drawback to this strategy is that the lower the death benefit, the more quotes you'll have to request and compare. As a general rule, most companies adjust their premiums after an initial term of one or two years. This means that if you buy a policy with a lower death benefit and don't keep it long enough for those premiums to adjust, you will basically be paying higher premiums. That's why it's convenient to buy term life insurance when you renew your car or house insurance every year. You get both policies renewed at once, just by buying one new policy for both of them instead of two separate policies each year (one for car insurance and another one for house/renters).
But let's say that you're ready to get life insurance with as low death benefit as possible, and you've found a company that offers such policies. Who cares if it costs more? You're going to get life insurance for a lesser amount, right? Wrong! This is where I have to point out the difference between life insurance plans and term life insurance. A life insurance plan is made up of multiple policies under the one policy holder, which can include more than one type of coverage (e.g., term comprehensive and whole/universal/solo health/comprehensive), from different companies. That way, you can get different coverage at different price points from very different companies without paying anything extra for it. If your policy is made up of multiple plans, the price point you're paying for each plan will affect how much you'll pay overall for the whole policy.
Best companies to get term life insurance from
Life insurance is a financial product that should be bought only when you know exactly what you're getting from it and why you need it. Don't get it because your parents, siblings or friends have it. Don't get it because your spouse has it. Don't get it because the car insurance agent or your internet provider recommends it to you.
The only reason you should buy life insurance is to cover the financial loss of a loved one. That means that if you already have enough savings in order to cover funeral costs and other final expenses plus enough allowance for your financial dependents, then put those extra savings toward something that will earn a return. You can also use them as a nest egg in case of an emergency yourself, surviving spouse/domestic partner or financial dependents.
However, if you want to continue your life the way you've been living it, just focus on buying the insurance only upon completion of all dependents' financial needs as soon as possible.
The last thing I want to tell you is that life insurance is very expensive. In our current economical climate where the value of a dollar is constantly decreasing, term life insurance is even more expensive than it used to be. That's why I've always considered term life insurance an investment product that should be purchased only after careful deliberation and research so that you can be sure it's the right one for you.
Posted on: May 28, 2014 @ 23:24
Response to letter on term life insurance via blog comments. I have written a response in the comments section below the original letter. After reading the letter, many readers expressed interest in being able to learn more about term life insurance. It is very important for them to understand all the ins and outs of this type of policy before they purchase it. So I started with the basics first, so that they would understand how it works and what their responsibilities are afterward. Today, my follow-up post is here . I go over the basics of choosing the best companies to purchase term life insurance from.
I know that some of you might think that this is not my business, and that you should buy your own policies. I completely agree with you. However, keeping in mind that many people are reading this blog and they are not interested in getting financial advice per se, but rather information about certain financial products so that they can make an educated decision regarding them, I have decided to provide a link to a third-party resource where you can compare life insurance plans for free and without signing up. The link will lead you directly to the comparison tool at SelectQuote .
Conclusion
As you can see, there are alternatives to purchasing term life insurance. Do not attempt to buy it if you have a low income or cannot afford to pay more than $50-$100 a year. Chances are that you will never use the policy and will lose money over time. You should also have an emergency fund in place before buying this type of insurance because you will be able to make smaller payments toward the policy for some time, and then pay off the full amount and save it for other important expenses in case of an emergency. Finally, remember that term life insurance is not the best option for everyone.