How to Find Cheap Life Insurance

While there are numerous factors that influence the cost of a life insurance policy, they essentially fall into two categories: the policy you choose and how you are assessed by the insurer. Because changing your insurer's rating is much more difficult (and can take years), choosing a cheaper policy that still meets your financial needs is often the best way to save money on life insurance.

Certain policies, such as term life insurance, are consistently less expensive, but can still be tailored to your specific financial situation. Knowing a little bit about pricing and the full range of products available can help you avoid overpaying for the coverage you require.

Most Affordable Life Insurance Policies

While life insurance rates will vary depending on your specific health and risk profile, term policies are typically the least expensive type of coverage because they only pay out if you die within a specific time frame (the "term" of the policy). However, if you are looking for permanent insurance to ensure that your family members can cover costs associated with your death, final expense insurance is an affordable option as well.

Term Life Insurance

Term life insurance provides coverage for a set period of time, and if you die during that time, the beneficiary will file a claim to receive the policy's death benefit. Because the coverage isn't permanent and you can't borrow against it, it's usually the cheapest life insurance product. A 20-year level term policy with a face value of $500,000 would cost $277 per year on average for a 30-year-old male in excellent health.

When shopping for term life insurance, the term length and death benefit are the two most important policy features that will influence premiums. Term lengths can range from one year to 35 years, and the appropriate length is usually determined by your financial situation. For example, if you've recently had a child and want to ensure that their college tuition is covered, you'd probably select a term of 20 to 25 years. Similarly, the death benefit of a policy can be tailored (the amount can range from $50,000 to more than $1 million) and should reflect your family's financial needs if you die.

Final Expense Insurance

Final expense insurance is typically a permanent insurance policy with a low face value (often $5,000 to $25,000) because it is intended to cover only a small portion of the costs associated with your death. It is frequently marketed to seniors, but it can also be applicable to younger people because the average cost of a funeral is often around $10,000, which most families do not have on hand in case of an emergency.

Final expense insurance differs from similar-sounding products such as funeral insurance in that the death benefit can be used as your beneficiary sees fit. A child or spouse named as your beneficiary, for example, could use the payout to pay for your funeral, arrange travel for relatives, or even pay off a small loan. Funeral insurance, on the other hand, typically pays the death benefit to the funeral service provider to cover a predetermined set of burial costs, such as the casket and service.

According to CSG Actuarial, an industry consulting group, the average premium for a final expense policy in 2014 was $711. When shopping for coverage, keep in mind that "final expense insurance" is offered by dozens of companies, and how a policy works may differ depending on the insurer, so we recommend double-checking that a specific product aligns with your expectations before purchasing.

Least Affordable Life Insurance Policies

Certain life insurance policies are consistently more expensive and, as a result, are more heavily marketed. However, they are frequently not the best option for the majority of people, so it is critical to understand whether they would be appropriate for your needs.

Permanent Life Insurance

Permanent life insurance comes in a variety of forms, including whole life insurance, universal life insurance, and variable life insurance. Because they provide lifetime coverage and have a cash value component, all of these policies are significantly more expensive, easily ten times the cost of term insurance. The cash value of a policy is the amount of money you would receive if you surrendered the policy to the insurer, and it can be borrowed against or used to pay premiums. Depending on the type of permanent coverage you purchase, the cash value may grow over time:

• In the case of whole life insurance, at a fixed rate.
• In the case of universal life insurance, either at the rate of the insurer's portfolio or at a minimum guaranteed rate.
• In the case of variable life insurance, at a rate determined by the portfolio of sub-accounts (basically, mutual funds) in which you choose to invest the money. If your chosen portfolio performs poorly, the cash value of your variable life insurance policy may also decrease.

A permanent policy is typically not the best option if you simply want to provide financial security for your family in the event that you die, as term coverage will provide the same death benefit with much lower premiums. Because of the high costs, these policies generally require you to use the cash value component of the account or use the policy as part of an estate plan in order for the investment to make sense.

Assume a 30-year-old male was looking to buy life insurance with a $500,000 death benefit to cover his family's lost income in the event he died. Even though his premiums increased significantly when he purchased a new policy, he could save $45,144 over the course of 40 years by getting term insurance.

If you want to buy permanent life insurance, one of the simplest ways to save money and get the most bang for your buck is to buy it when you're young and healthy. While you will pay premiums for a longer period of time, the annual premiums will be lower, and the cash value may be significantly higher later in life due to additional years of compound interest growth (assuming you do not choose poor investments with a variable life insurance policy).

No Medical Exam and Simplified Issue Life Insurance

Any of the above-mentioned insurance policies may be described as "simplified issue" or "no medical exam." These qualifiers have no effect on how the policy operates, though death benefits are frequently limited to less than $100,000. They simply mean that the underwriting (approval) process has been sped up in some way. While a shortened underwriting process may sound appealing, it means that the insurer has less information with which to tailor your rates and must assume that you are a higher risk, so premiums are typically several times higher.

If you want to save money on life insurance, we recommend going through the entire underwriting process. It will necessitate that you fill out an extensive application, undergo a medical exam (which will take approximately 30 minutes and can be done at your workplace or at home), and wait a few weeks while the insurer reviews everything. However, if your premium for a 20-year term policy is only $250 instead of $500 for the no medical exam option, you will save $5,000 over the course of the policy.

What Else Goes Into the Cost of Life Insurance?

Once you've chosen a policy, your life insurance premiums are largely determined by actuarial tables, which insurers use to estimate your life expectancy. Because life insurance pays your beneficiary when you die, insurers want to be as precise as possible and will frequently inquire about your:

• Age
• Gender
• Health and medical history
• History of tobacco use
• Family health and medical history
• Occupation and hobbies
• Driving history
• Credit history

While some of these, such as your age and family history, cannot be changed, if you know there is a specific reason an insurer would consider you high risk, you may be able to get cheaper life insurance rates by changing your habits or waiting a period of time.

Insurers, for example, consider you a smoker if you have smoked in the last year, a higher risk if you have smoked in the last five years, and will sometimes overlook a tobacco history if you haven't smoked in more than five years. So, if you quit smoking four years ago and don't have a pressing need for coverage, waiting a year to apply may result in lower annual premiums and a significant savings over the life of the policy.

Just keep in mind that it's critical to be truthful when filling out a life insurance application, even if answering the questions makes you uncomfortable or you know an answer will raise your premiums. Insurers typically have a few years to cancel coverage if they discover you falsely answered any underwriting questions, and you will forfeit all premiums paid up to that point.