The main purpose of life insurance is to provide for any dependents a person may have should they pass away. Policyholders’ dependents, or beneficiaries under a life insurance policy, will receive a payment after the insured dies. The benefit may help their dependents provide for living expenses, debts and other financial obligations.
One can have multiple beneficiaries under the terms of a life insurance policy. If one purchases a life insurance policy, the division of money between the beneficiaries is an important factor to consider.
Another issues to consider is whether to appoint a secondary beneficiary to receive any benefit in case one of the primary beneficiaries passes away.
A life insurance company will use the process call underwriting to determine whether to sell a life insurance policy to an applicant, and how much to charge the applicant in premiums. Some of the factors, which companies look at, are the medical condition of the applicant, the applicant’s age, and whether the applicant is a tobacco user. Life insurance companies are attempting to determine the life expectancy of the applicant. Thus, a younger non-tobacco user will pay less in premiums, as opposed to someone who is older and is a tobacco user.
Single individuals with no dependents likely do not need life insurance. For those with dependents, it is important to determine how much insurance the dependents will need after they are gone, and to focus on what kind of lifestyle the applicant would like them to have.
Saving Money on Life Insurance
There are a number of methods individuals can use to save money on life insurance. A few of the best ways to save money are listed below:
A. Shop with Multiple Companies or Obtain a New Policy.
Different companies will have different underwriting guidelines. The premium payments may be lower for certain companies. The pricing of premiums is often determined by competition, whereby comparing quotes may be helpful to save money. Even if one has recently purchased a policy, they are not captive to that company and policy. A policyholder who has purchased a policy in recent years, and is still in good health, may find a better deal by comparing policies from different companies. A policyholder should be able to cancel their existing policy without any payment penalty. Still, it is best to insure that a new policy is in place before terminating a current policy.
B. Comparison of Benefits and Provisions of Policy.
Applicants for life insurance should examine the terms of different policies to see if they contain similar levels of coverage. The various features offered with certain policies will likely impact their cost. A less costly policy may have fewer features, or a lower benefit, while a more expensive policy may actually provide more appropriate protection for the applicant.
C. The Type of Coverage for the Policy.
There are two main types of coverage for life insurance policies. The first type is whole of life assurance, which provides coverage for a holder’s entire lifetime, and guarantees a lump sum payment upon the death of the holder. Term assurance is the other type, and only provides coverage for the term of the policy. If the holder does not die during the term, there is no payment or refund of premiums to the holder. Whole of life assurance will have higher premiums since there is a certainty a payment will be made. In addition, there may be a cash-in provision in the policy if the policy is terminated for any reason. In comparison, premiums will be lower for term assurance, since it is less likely a payment will be made. Another term assurance policy option is decreasing term assurance, which lowers the amount of payout over the term of the policy. This may be useful where there is a debt, which is being paid down, such as a repayment mortgage. Due to the dwindling payout, premiums will be even lower for this type of policy than for a level-term assurance policy.
D. Be Cognisant of the Type of Broker You Use.
The type of broker that you use may impact how much you pay, and the type of coverage you get. Although brokers check with multiple companies, they may have professional relationships with certain companies that would bias them towards one policy over another. Further, they may have certain commission arrangements with these companies, which would also influence the policies, which they recommend for you. One way to deal with this issue is to use an “execution broker”. With an execution broker, a fee is paid upfront, and the consumer is responsible for the selection of the policy. However, under this scenario, the broker has no responsibility to choose a product, which is suitable for the individual. The broker’s only responsibility is to purchase the policy efficiently. Thus, if you have a more complex situation with your family, or if you feel that you need significant advise as to the process of purchasing a policy, you may be better off using an independent broker. You should then determine the status of the broker with the FCA. The FCA covers life insurance as part of its mission in regulating financial firms, which provide services and products to consumers.
E. Quit Smoking
For a smoker, the easiest way to save money on life insurance is to stop smoking. One a person has been free of tobacco products for at least 12 months; the cost of premiums will go down dramatically. It may even save up to 50% of the premium cost. However, if one were a smoker, it would not make sense to attempt to lie about the tobacco usage in order to save money. Some companies may require physicals, which would include a test for tobacco usage. Thus, the companies may eventually discover the tobacco usage and would deny a policy to an untruthful applicant.
Conclusion
There are a number of types of life insurance policies one can buy. As noted herein, the type of policy and the coverage provided will influence the amount of premium paid by the holder. Since premium rates are driven mainly by competition, an applicant can save money by comparing policies and premiums with different companies. Further, applicants may be able to save money by using an execution broker. Individuals who are savvy may be able to save significant amounts of the cost of the policies they purchase by following these tips.