If you’re reading 2paragraphs, you’re probably young enough to need life insurance. The purpose of life insurance is to replace your income, reduce debt and secure your family’s financial future in case something tragic happens to you. Unfortunately, most Americans have misconceptions about life insurance, specifically regarding how much they need and its costs. According to LIMRA, 40% of U.S. households say they need more life insurance, yet 83% say they can’t afford to buy additional coverage. The research study then went a step further, asking participants to estimate the cost of a 20-year, $250,000 level term life policy for a healthy 30-year-old. The average guess was $400 per year – nearly 3 times the actual cost of $150. This discrepancy demonstrates that financial planners and advisors need to do a better job of educating the public on the cost of life insurance.
If you’re looking to buy a policy, here are 7 tips to getting affordable life insurance.
- Shop Around – Compare life insurance quotes, companies and different types of policies. If you don’t know what’s available in the marketplace, how can you be sure you are getting the best coverage at the lowest price?
- Buy Term – Term life insurance is the cheapest and most popular form of coverage. If an agent or advisor is trying to sell you a permanent whole life policy and you aren’t wealthy, work with someone else. Permanent life insurance pays a much larger commission.
- Don’t Buy More Than You Need – being overinsured is just as bad as being underinsured because premiums will become a bigger weight on your budget.
- Buy Coverage Young – your age and health play a big role in determining your premiums, so buy coverage young when you are the healthiest. Prices will only increase as you age.
- Pay Annually – companies offer discounts if you pay for 12 months up front.
- Don’t Smoke – smokers pay 3-4x more in premiums than non-smokers.
- Don’t Buy Guaranteed Issue – if you’re healthy, there is no need to buy a guaranteed life insurance policy. Guaranteed coverage is a last resort and unless you are a very high risk applicant, you should be able to get coverage with a traditionally-underwritten policy.