How to Save on Life Insurance
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How to Save on Life Insurance
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POLICY CONCERNS

Life insurance is an important financial vehicle designed to protect loved ones in the event of the policyholder's death. The resulting infusion of cash can be critical for those left behind, helping them cover funeral costs and fulfill other needs. Purchasing a policy can be confusing and expensive if you've never done it before. There are many variables to consider (How much coverage do you need? What type of policy should you get?) and each comes with its own price tag. We asked experts across the country to share their tips for saving money on life insurance.

Don't Buy More Than You Need
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DON'T BUY MORE THAN YOU NEED

Some agents or financial planners will suggest you buy insurance to cover seven to 10 times your annual income. This may not be the best approach for everyone, however. "What if you have a lot of savings or already have some life insurance? The seven-to-10-times rule does not take this into account," says Chris Abrams, owner of Abrams Insurance Solutions. Rather than strictly following such a rule, use a life insurance needs calculator to help determine the right amount of life insurance for your situation.

Related: 12 Tips to Keep You From Buying Too Much Insurance

Choose a Term Policy
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CHOOSE A TERM POLICY

There are plenty of people who extol the virtues of what's known as whole or universal life insurance, a policy that remains in force for the entire lifetime of the insured person. But the truth is that term life insurance (which provides payouts to beneficiaries if you die during a specified term) is the best product for most people, says Logan Sachon, an editor at the online insurance seller Policygenius. Whole life can cost anywhere from six to 10 times more than term life insurance.

Tell the Truth
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TELL THE TRUTH

Not only is it a fraud to lie on your insurance application, it could leave your family without protection. "During underwriting, lies can result in your application being canceled or in you getting higher rates," Sachon says. "And if your lie does make it through and you're issued a policy, you could leave your family without protection if the fraud is discovered later." If you're honest from the start, your broker can match with you the best carrier for your actual health and save you money and time in the long run.

Apply Before Getting Pregnant
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APPLY BEFORE GETTING PREGNANT

If you're a woman and want to have kids, don't wait until you become pregnant to start shopping for life insurance. "Many insurance companies will postpone your application until after you give birth or raise your rates based on pregnancy weight gain," Sachon says. But if you're pregnant now, you should apply for coverage anyway, she says, as it's possible you could still get offered a policy, especially if you're in your first trimester.

Skip Rop Term Insurance
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SKIP ROP TERM INSURANCE

If you're hoping to cut costs, steer clear of what's known as return-of-premium term insurance, which refunds your premiums when the term expires. This option may sound appealing, but can be as much as five times more expensive than traditional term life insurance, Sachon says. "The best course of action for most people is to go with the more affordable term life insurance and save or invest the difference."

Don't Get Seduced By Instant Coverage
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DON'T GET SEDUCED BY INSTANT COVERAGE

Some life insurance companies promise instant coverage when you apply online, and many people love the idea of protecting their families starting now. But you can get "instant coverage" no matter how you apply, Sachon says. Most life insurance companies offer temporary coverage that starts when you pay your first premium and lasts through the underwriting process.

The Standard Deduction and Personal Exemption Have Changed
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CONSIDER A GUARANTEED INSURABILITY RIDER

With most life insurance policies, if you want to increase the coverage amount of your policy after it's in force, you have to go through underwriting again or apply for a new policy, Sachon says. "But if your policy has a guaranteed insurability rider, you can add coverage at predetermined times like, for example, the birth of a child without going through underwriting again. Essentially you're locking in your rates for future coverage."

Buy a Shorter Term
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BUY A SHORTER TERM

A 30- or 40-year term naturally costs more than a 10- or 20-year term. If a shorter term will match your needs, don't spend the money on the extra years of insurance. "If 20 years of coverage will suffice, only get a 20-year term," says Chris Abrams of Abrams Insurance Solutions.

Consider Laddering
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CONSIDER LADDERING

Another way to save on life insurance is to purchase multiple policies, a practice that is called "laddering." For example, if you need $1 million of coverage at age 30 but only $500,000 at 40 and $200,000 at 50, then buy a 10-year-term $500,000 policy, a 20-year $300,000 policy, and a 30-year term $200,000 policy. "This is cheaper than buying a 30-year $1 million policy, as you will not be paying for all that unneeded coverage beyond 10 and 20 years," says John Holloway, co-founder of the digital life insurance brokerage NoExam.com.

Resolve Health Conditions
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RESOLVE HEALTH CONDITIONS

If you have a health condition that's causing your insurance cost to increase, you can work to resolve that condition and reapply at a later date. "This works for things that can be controlled, like weight, smoking, high blood pressure," Holloway says. "Our advice is to get coverage in place then work on reducing those risk factors. Then you can get a better rate."

Take a Medical Exam
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TAKE A MEDICAL EXAM

A fully underwritten life insurance application — which involves giving the insurance company blood and urine samples, along with all your medical records — may take longer but can significantly lower premiums. "The more they know about your health, the less risk they are taking on," says Anthony Martin, owner of Choice Mutual, an online agency that sells final-expense life insurance. "Lower risk on their end means they can charge less for the insurance."

... Or Don't Take a Medical Exam
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... OR DON'T TAKE A MEDICAL EXAM

If you haven't visited a doctor in more than five years, you should probably buy a policy that does not require an exam. Why? "Because you don't know what health issues you may be unaware of," Martin says. "If you go the route of taking an exam and they find something — [high blood pressure], cholesterol issues, or diabetes — that could significantly raise your premiums." A no-exam policy will almost certainly save you money over a fully underwritten policy, he says.

Don't Limit Yourself to Companies You Know By Name
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DON'T LIMIT YOURSELF TO COMPANIES YOU KNOW BY NAME

There are thousands of life insurance companies in the United States, and a tiny fraction advertise via mass media to ensure they are household names. "The other 99 percent are not bad, untrustworthy, or financially unstable. They just have a different business model," Martin says. "Being open to all these other companies is imperative, because you need lots of choices when shopping for life insurance."

Buy With a Group
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BUY WITH A GROUP

You may have access to life insurance through an employer, AARP, or another large organization. It's possible that the cost is lower than you'd pay as an individual for the same coverage, although it still pays to comparison shop.

Stop Smoking
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KICK THE HABIT

Smoking is the quickest way to increase your life insurance premium, says Matthew Barr of Loyal Christian Benefit Association. "You could effectively end up paying twice as much in premiums if you smoke versus a nonsmoker," he says. "Insurers typically need to see two years of tobacco-free habits before they will allow you to apply at nonsmoker rates, but that savings alone is usually well worth it."

Try to Get Non-Tobacco Rates
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TRY TO GET NON-TOBACCO RATES

Do you chew tobacco, or smoke cigars or a pipe? "Some insurance companies define their tobacco rating purely by cigarette usage," says Anthony Martin of Choice Mutual. "Those who chew, smoke cigars or a pipe can get non-tobacco rates from certain insurance companies that could result in a savings of 40 to 60 percent."

Backdate Your Policy
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BACKDATE YOUR POLICY

Many insurance companies use your nearest age to develop the premiums. "This means that once you're 45 and six months old, they consider you to be 46," says Ty Stewart, founder of Simple Life Insurance. "The extra premiums paid as a 46-year-old will really add up over the lifetime of a policy." What most life insurance shoppers don't know is that you can request to "save age" and backdate the policy, he says. This involves an upfront payment for the extra six months past your birthday. In return, you're locked in at the younger age for your entire 10-, 20-, or 30-year policy. In other words, a few hundred dollars up front can save you thousands over the long run.

Buy Insurance Through a Corporation
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BUY INSURANCE THROUGH A CORPORATION

If you have a corporation, it may make sense to own your life insurance policy through the company. "Corporately owned life insurance allows you to pay the premiums with pre-tax dollars versus after-tax dollars," says Daniel Kachani of WealthInsurance.com. "Further, if you purchase a permanent life insurance policy such as whole life or universal life, you have the ability to invest excess corporate earning into the policy, which will grow tax-free and eventually exit the company tax-free upon death." Many high-net-worth families use corporately owned life insurance to pass down wealth to the next generation, he says.

Choose an Income Protection Settlement
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CHOOSE AN INCOME PROTECTION SETTLEMENT

Instead of choosing a lump-sum payout for your beneficiaries, you may want to consider an income stream that supports them for a number of years. For example, instead of a $1 million payment, they would receive $100,000 every year for 10 years. "This can be wise if you are concerned about their ability to manage or waste a large amount of money," says Ty Stewart of Simple Life Insurance. In return for selecting this option, the life insurance company will offer you significantly lower premium payments, because they'll be able to use that money to generate interest income for a longer amount of time.

Quit Dangerous Hobbies
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QUIT DANGEROUS HOBBIES

Maybe you like to race cars on the weekend, or have a penchant for skydiving or bungee jumping. You may want to reevaluate how important that hobby is moving forward, because it's likely to increase your life insurance rates, says Zach Taylor of cannabis-focused Life Insurance 420. In addition to triggering higher rates, daredevil hobbies could result in being denied coverage altogether in some cases.

Find a Company That Specializes in Your High-Risk Hobby
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FIND A COMPANY THAT SPECIALIZES IN YOUR HIGH-RISK HOBBY

People who are committed to high-risk avocations such as scuba diving, rock climbing, or skydiving may not have to pay so much more for life insurance, says Mike Raines of Raines Insurance Group. "Each life insurance carrier looks at your health and lifestyle differently," he says. "If you use a special risk agent, they will offer you the best opportunity get the lowest rates."

Buy Joint Term Life Insurance If You're Married
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BUY JOINT TERM LIFE INSURANCE IF YOU'RE MARRIED

Because of the way the actuarial model works, married couples who buy a joint policy may save money. "The model takes a woman's longevity into consideration, so you may get a very cheap premium," says Yogesh Shetty, CEO of AI-driven Avibra. Another advantage: If one partner dies, the other partner gets the full benefit.

Complete a Needs Analysis With a Professional
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COMPLETE A NEEDS ANALYSIS WITH A PROFESSIONAL

Buying too much life insurance drives up the cost unnecessarily, and buying too little can burden your beneficiaries. Conducting a formal needs analysis with a licensed agent can help ensure you're buying the right amount of coverage, says Chris Mason, senior vice president of sales distribution for insurance marketplace HealthMarkets.

Solution: Make a Budget
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PAY PREMIUMS ANNUALLY

Most insurance carriers charge a fee to pay premiums monthly as opposed to annually. "If someone is in a position to write a check once per year, as opposed to having the premium drafted out of their accounts each month, they can save money," says Taylor McDougal of Mack Financial Group. Life insurance carriers offer discounts of as much as 7 to 8 percent for paying the entire annual cost up front.

Buy Early
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BUY EARLY

Insurance analyst Virginia Hamill with FitSmallBusiness says the best tip for saving money on life insurance is to get it when you're young, as in your 20s or early 30s. After that, costs start rising, Hamill says. Life insurance is based on age, so your rates today are as low as they will ever be.

Buy Multiple Policies
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BUY MULTIPLE POLICIES

Insurance companies show appreciation for clients who buy multiple policies in the form of discounts. If you already have auto, home, or any other insurance product, speak to your agent about life insurance policies. You may qualify for a discount on the new policy or any existing policies underwritten by the same insurer — but don't forget to compare the price against quotes from other companies.

Use an Independent Life Insurance Agent
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USE AN INDEPENDENT LIFE INSURANCE AGENT

An independent agent can shop for policies at multiple companies for you, identifying the best plan and price. "Work with a broker who can quote multiple carriers. That way you can compare terms and prices and get the policy that best fits your need," says Hamill. If you work with a captive company, such as State Farm or AAA, they can provide only their own rates.

Minimize Riders
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MINIMIZE RIDERS

Riders are optional add-ons that consumers select while applying for life insurance coverage. "While riders can enhance your life insurance coverage, some riders add a significantly higher premium with little added value," says David Duford, owner of Buy Life Insurance for Burial. Return-of-premium riders on term life insurance coverage, for instance, can be particularly pricey.

Drive Safely
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DRIVE SAFELY

Believe it or not, a bad driving record, in addition to a bad financial credit report, may cause an insurance underwriter to "rate" the case, says Mark Charnet, founder and CEO of American Prosperity Group. This means the carrier will increase your premiums because of the risk associated with insuring you.

Adjust the Term Length
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ADJUST THE TERM LENGTH

When buying term life insurance, you can adjust the length of the term by increments of five years, and doing so can save money, says Zach Taylor of Life Insurance 420. "If you wanted $1 million coverage for a 30-year term, but rates are too expensive for you, try adjusting to a 25-year term and see if the rates meet your budget," he says. "If the length is more important, then try lowering the death benefit."

Cross-Reference and Compare
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CROSS-REFERENCE AND COMPARE

Many agents are more motivated to sell you higher-commission products than to select the best-performing products for your goal and situation, says Nelson Lee of Pacific Wealth Solutions. Even if an agent claims to have compared policies for you and presents you with a few different options, you should still do your own research. "The cost of insurance ... terms and riders on different insurance policies can be vastly different from one another," Lee says. "We live in an age of information overflow, so oftentimes most of this information is readily available online with a quick search."

Review Your Coverage Annually
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REVIEW YOUR COVERAGE ANNUALLY

A good life insurance agent will stay in touch to review your policy with you at least once a year, says Chris Abrams of Abrams Insurance Solutions. "Life happens and you may not need the coverage anymore," he says. "There is no penalty for canceling the policy. Review your coverage to make sure you still need it."