Monday, 14 Nov 2011
This is a guest post by Justin Toladro from Life Insurance Finder. Visit his site to find the best life insurance policy for you and your family.
It is important that we all have life insurance cover on our lives to protect those close to us from having to suffer financially should we happen to die while our family still depended on us financially. Without life insurance there would be much more misery in the world as any family that has lost an uninsured breadwinner will attest to.
It probably depends on your personal viewpoint whether you feel life insurance is expensive or not. If someone you know has recently died and had insufficient life insurance to cover all his or her debts, you will probably have already checked to see where your family would stand if they found themselves in a similar position. It is silly to over-insure yourself but it would be a disaster if you were to die while under insured.
It is also common sense to make certain that you are not paying too much for the cover you are getting. However, before you do this you should be aware that there are two distinctly different types of life insurance and you should not attempt to directly compare one against the other as that would be like comparing apples with oranges – they’re both fruit but they’re very different when you look closely. When comparing the cost of life insurance policies you can only compare one policy with another of the same type. The two types of life insurance from which all other life insurance policies are derived are term life insurance and whole life insurance.
Term Life Insurance
Term life insurance can be looked on as being much the same as general insurance as are your home and car policies. You take out term life insurance cover for a specific period of time, hence the word ‘term.’ Once that term has expired and you remain alive the insurance cover expires also and you are no longer insured. The premiums you will have paid during the term of cover will be forfeited to the life insurance company. If you had have died during the term your life was insured the company would have paid the insured amount to the person or persons named on the policy as your beneficiaries.
Whole life Insurance
As its name suggests, whole life insurance is taken out for the whole of your life and is made up of three components:
- Insurance on your life that will only be paid on your death
- A cash value component that you can either borrow or access by surrendering the policy.
- Administrative costs.
Because of this, whole life insurance costs more than term life insurance does as the life insurance company will have to pay back at least some of the money you have paid in premium, if you die or if you surrender the policy before you die. Of course, once you surrender the policy you are no longer covered.
How to Pay a Cheaper Premium on your Life Insurance Policy
Once you know what you are comparing you may find some of the following tips valuable in getting the lowest premium for the best possible cover:
- Don’t accept the first quote you are given. Have a look around and see if another life insurance company can give you a similar cover for less cost.
- Look for discount packaging. Some life insurance companies also offer fire and general cover and they often offer a cheaper package deal if you place all your insurance needs with them under the one deal. This is also a common practice amongst insurance agents. Look around between companies and agents and you could be pleasantly surprised.
- Group insurance. Many employers and associations have a group insurance arrangement with a life insurance company. This means their employees or members can obtain life insurance cover far cheaper than that of an individual. Check this out with your employer or any association you are a member of to see if you are eligible. In some cases this type of cover is arranged through superannuation in which the employer is obliged to pay a percentage of the premium cost.
- Consider term life insurance. If you have limited funds available but need the extra life insurance, consider buying the extra cover as term life insurance. You can take out term life insurance for terms of 10, 20 or 30 years at much lower premium cost than you can get whole life insurance. Although you will have to be prepared to lose your premium payments if you should see out the term. Although by paying extra you can get some term life insurance policies that will pay back some of your premium costs when the term expires and you haven’t.
- Non-smoker discounts. If you don’t smoke you can obtain a life insurance policy cheaper than you can if you are a smoker. You will have to have not smoked for a full 12 months before you apply for the cover to enable you to benefit from the lower non-smoking premium.
- Buy when young. It’s too late if you are older as you can’t wind back time, but if you are still young, now is the time to buy life insurance. Both term and whole life insurance get dearer as you age.
- Only buy what you need. You will need to make sure you have enough life insurance cover to adequately meet all your family’s needs should you happen to die. Any amounts above that can be regarded as being surplus.
There are many ways you can lower your premium costs if you go about it the right way. However, you must not lose sight of why you need life insurance in the first place. Although it might be prudent to keep your costs down it should not be at the expense of being under insured as it could be your loved ones who may ultimately pay the price.