Tags: life insurance | financial planning | health

What You Need to Know About Reducing Your Life Insurance Costs

What You Need to Know About Reducing Your Life Insurance Costs
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Monday, 24 July 2017 01:14 PM Current | Bio | Archive

Life insurance rates are near all-time lows due to competition and efficiencies developed by the insurance industry. The market is great for buyers, but that doesn’t mean you should forgo due diligence on your life insurance purchase.

Some of the factors that contribute to your life insurance rates like age, gender or health are out of your control, but there are still many ways you can reduce your rates. This article will lay out how life insurance companies base their rates so you can plan accordingly to get the best rate for your policy.

Health

The largest factor in determining your rate will be your health condition and medical history, including your family’s medical history. Life insurance companies calculate the risk associated with different medical conditions and appropriately apply premium ratings or decline coverage. That said, even if you have some medical conditions you shouldn’t give up on obtaining coverage. Life insurance companies have different standards when assessing risks. It is important to use an experienced life insurance professional who can review underwriting guidelines from several companies before applying for your coverage.

Most life insurance companies require an independent medical exam prior to issuing a policy. This is where you can make a difference by taking actions that can help you earn a more favorable rating. Smoking is one of the largest factors that contribute to your insurance rate, sometimes increasing costs by up to 50 percent. It is not simply enough to quit smoking and hope that you will get a reduced rate a month later, as many insurance companies will request an applicant be smoke-free for at least two or more years. Weight is also a contributing factor. Sometimes a few pounds will mean the difference between a preferred rating category and a less than ideal rating category. Health factors such as cholesterol are also considered when determining your rating, so actions that can mitigate your cholesterol like exercise or dieting should be taken up before applying.

There are also steps that can be taken directly before an exam that can affect your rating. Avoiding alcohol for at least a week prior to your exam is advisable, as it can negatively influence your test results. Additionally, avoiding fatty foods, caffeine, and sodium for the 24 hours beforehand may lead to more favorable results from your exam, and subsequently your rating. Lastly, getting a good night’s sleep and abstaining from exercising directly before an exam is advisable as well.

Lifestyle

A factor that also contributes to your life insurance rate is your lifestyle and if any aspects of your lifestyle impose a risk to your life. You’ll be asked questions about your occupation and hobbies and they will even check your driving history and credit. If any of these factors indicate a higher risk against your life, your rates will increase. An example of a hobby that may impact your rate is flying your own aircraft. Because of the inherent risk involved in flying personal aircraft, life insurance companies will apply a higher rate, depending on your experience and flight frequency.

How Much Life Insurance Should You Buy?

The simplest way to keep your life insurance costs low is to make sure that you only purchase the proper product at the right price. The best way to avoid buying too much or too little insurance is to methodically calculate the financial needs of one’s family and dependents. Using general rules like “buy X times more than your annual income” are not advisable as they will likely lead to being over or under insured.

Working with an experienced life insurance professional who can do a thorough assessment of your needs is essential to preventing purchase mistakes. For a more thorough explanation of how much life insurance you should buy to replace income and pay debts, see my article from last week that goes over this process in detail (note it does not discuss estate tax planning).

Payment Schedule

A common misconception about life insurance is that you only pay for it on a monthly basis. While you can pay for your policy monthly, it is advised that you pay for your life insurance in quarterly, semiannually, or annual installments as it may reduce your costs by up to 10 percent. We have found that sometimes people who pay premiums quarterly or semiannually sometimes forget to pay their premium and the policy lapses. Therefore the safest way to pay is annually or by a monthly bank draft on your checking account.

How to Compare Policies

The main point of comparison that most people look to when shopping for policies is the premium. It cannot be stressed enough that this is the wrong way to choose a policy. Some companies are able to offer the lowest rate by having less than favorable terms in the contract. This would include but is not limited to conversion rates, how late payments are handled, and how your policy’s cash value grows. Just like any product, you want to purchase what will be most valuable to you, not the cheapest product that will give you headaches down the road.

The way in which life insurance companies assess an applicant’s risk can vary wildly, and thus purchasing life insurance shouldn’t be rushed. After all, in the case of whole life policies and universal policies, it is usually a purchase for life. In order to avoid oversights, paying too much for insurance or not having the right amount of insurance, the best course of action is to work with a trusted insurance professional whose expertise and access to a wide range of carriers can best fit your specific health or financial needs.

Richard S. Bernstein, CEO of Richard S. Bernstein & Associates, Inc., West Palm Beach, is an insurance advisor for high net worth business leaders, families, businesses, municipalities, and charitable organizations. An insurance advisor to many of America’s wealthiest families, he is a writer, trusted local and national media resource and expert speaker on estate planning and health insurance. Visit his website at www.rbernstein.com. To read more of his reports — Click Here Now.

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RichardSBernstein
Life insurance rates are near all-time lows due to competition and efficiencies developed by the insurance industry.
life insurance, financial planning, health
1017
2017-14-24
Monday, 24 July 2017 01:14 PM
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