We put together this life insurance buyer’s guide on how to buy the most affordable life insurance because unless you are in impeccable health, the most affordable life insurance rates are rarely going to be with the company that advertises,
“Savings of up to 70% on your Life Insurance”
Rather, the most affordable life insurance is going to the the company that caters to your specific health and lifestyle.
That is why we at IBUSA always say, to get the most affordable life insurance you need to apply with the best life insurance company…for you, based on your unique circumstances.
Now, when shopping for affordable life insurance, the first question you need to ask yourself is “what am I trying to accomplish here?”
Why do you need or want life insurance, and what are you expecting from a policy?
Is your objective to provide income replacement for loved ones should disaster strike?
Or maybe you want to leave a reliable tax-free legacy for one or more heirs—or you want to make sure your estate will have enough cash on hand to cover debts, administrative costs, and final expenses.
Maybe you’ve heard about the advantages some types of life insurance offer in retirement savings, and you like the idea of a secure, tax-advantaged savings vehicle.
Different Policies for Different Purposes
You see, different life insurance policies are designed to serve different purposes.
And, predictably, the premiums charged for any given policy depend in large part on the benefits that specific policy is providing.
Where term life insurance, for instance, might offer cheap life insurance coverage for a young parent wanting to provide a safety net for a spouse and child, it might be completely inappropriate for someone else who wants to save on estate taxes or fund a testamentary trust.
Even if a policy looks like cheap life insurance, if it doesn’t meet your needs, it isn’t a good bargain.
Who You Apply With Matters
Once you narrow down the life insurance options appropriate for your goals, you’ll find that premiums vary significantly based upon the amount of coverage offered, the individual whose life will be insured, and sometimes the company issuing the policy.
This is why working with an independent agent with a wide network of insurers (as opposed to a captive agent who works for a single company) is one of the simplest ways to find the most affordable life insurance premiums.
Independent agents help compare and contrast available options and rates offered by multiple companies and find a policy that suits your needs and comes with competitive rates.
Bearing these factors in mind, the question of precisely what qualifies as “affordable life insurance” hinges in part on your personal circumstances and finances.
How To Buy the Cheapest Life Insurance
The first thing to decide is what type of life insurance you need. The cheapest life insurance is going to be term life, followed by guaranteed universal life, then a toss up between indexed universal life and whole life, based on policy design.
Once you’ve decided what type of life insurance works best in your situation, you can begin looking at specific policies provided by insurers who offer the appropriate coverage.
To find the cheapest life insurance, it’s usually a good idea to shop with an agency that works with many different life insurance companies, rather than just one, or even a handful.
You see, not only do underwriting and actuarial standards vary between companies, but one specific insurer might view a factor as high-risk that another insurer isn’t overly concerned about or doesn’t screen for at all.
The result can be dramatically different life insurance premium costs between the two.
An independent agency that works with dozens of the top rated insurance companies can give you an idea of the affordable life insurance options on the market and help find a highly rated insurance company that offers life insurance that meets your individual needs.
How Do Insurance Companies Set Premiums?
Along with the kind of life insurance and amount of coverage, life insurance companies set premium rates based on a range of demographic and health information presented by an applicant.
In the end, an insurance company tries to set its rates according to how long it expects an applicant to live based on the applicants risk profile, such as preferred best, preferred, standard plus, standard, and substandard health ratings.
Thus, younger and healthier people generally pay lower premiums than older applicants with existing medical problems; and life insurance for women usually costs less than men the same age—because women have a longer life expectancy.
Age is the #1 Factor
Due to the importance of life expectancy in setting premium rates, one of the keys to obtaining affordable life insurance is to apply as early as possible.
Every year older you are when you apply for a policy translates into higher premiums.
Eventually, you reach an age where low-priced life insurance is nearly impossible to find.
Along the same lines, the older you get, the more likely you are to develop a health problem resulting in significantly higher rates.
Every insurance company is a little different in the medical conditions they take into account and how heavily each is weighted.
A condition that leads to much higher premiums from one company may be irrelevant or only moderately important to another.
For this reason, it’s often a good idea to request quotes from more than one insurer before committing to a policy.
With the vast majority of policies, tobacco users can expect to pay more, but there are a few policies out there that don’t consider tobacco use in underwriting.
If your work environment is considered high risk, it can affect your premiums.
Also, if you engage in high risk avocations, or hobbies, your life insurance premiums may be higher.
And, of course, premiums for a given policy depend a great deal on the benefits the policy provides.
Policies that offer permanent guaranteed coverage and accumulate cash value tend to cost more because they are certain to end in a payout by the insurer—except if the policy lapses for nonpayment.
By contrast, only a small minority of term policies end with a payout.
Exam vs No Exam
In some cases, you only need to fill out a short application, such as with simplified issue life insurance.
Other policies require a detailed medical examination by a healthcare professional.
Some policies are more hybrid between a fully underwritten medical exam, offering no exam life insurance but with a vigorous background check.
Finally, there are even some “guaranteed issue” policies that don’t require much more than your name and age.
Most companies also offer numerous riders—for a higher premium—that increase a policy’s potential value to the policyholder.
For example, riders that accelerate death benefits in the event of permanent disability or an extended nursing home stay increase the premiums due for the policy.
However, in many cases those supplemental benefits end up being well worth the extra expense.
As the old saying goes, “you get what you pay for.” Cheap life insurance is great in theory, but only if it meets your needs.
To find affordable life insurance that works in your situation, you need an understanding of the types of life insurance on the market and their relative pros and cons.
Different Types Of Life Insurance
Let’s take a more in depth look at the various types of life insurance policies available.
Term Life Insurance
Term life is the cheapest life insurance and is also the simplest, most bare-bones form of life insurance.
A term policy provides coverage over a finite period, which is the policy’s “term” (often ten, twenty, or thirty years).
During the term, you make regular premium payments, and, if you die during the term, the insurance company pays the death benefit to the policy’s beneficiary.
If you don’t die during the term, the coverage lapses with no payout—term policies have no cash surrender value.
Term policies tend to be cheaper than other life insurance because there is a very good chance the insurance company won’t ever pay a dime to the beneficiary.
In effect, premiums from the vast majority of policies that don’t pay out subsidize the small minority of policies that are triggered.
Term Length Matters
Term policies with longer terms (20 or 30 years, say) usually have higher premiums than shorter term life policies.
you’ll probably pay less in the aggregate for a policy with a thirty-year term than for a ten-year policy renewed twice over the same thirty-year period.
This is because, upon each renewal, the insurer reevaluates its risk and increases the premiums.
Renewals (and newly issued term policies) for people who have reached retirement age have dramatically higher premiums so that, even if a policy is guaranteed renewable through age 90, the premiums in the later years are often no longer affordable.
If your reason for buying life insurance is income replacement (i.e., providing a means of support for dependents if you die) and you’re fairly certain you’ll reach a point where you no longer need life insurance for that purpose, a term policy can be a good pick for cheap life insurance with a relatively high payout.
But, if you want a policy guaranteed to provide liquidity for your estate or a death benefit to your heirs, term life won’t do the trick.
Even term policies that boast “guaranteed renewal” have a maximum renewal age, and, once you reach that age, you won’t be able to keep the coverage.
Some term policies can be converted to permanent coverage like whole life if the election is made prior to a date specified in the policy.
Upon conversion to permanent coverage, there’s a good chance the premiums will increase, the death benefit will decrease, or both.
But, if you need higher coverage now, won’t need it later, and want life insurance with cash value or that is guaranteed to pay out, purchasing term and then converting to whole life may be a smart way to obtain affordable life insurance.
Whole Life Insurance
Whole life is a time-tested permanent life insurance product that offers fixed premiums and death benefits, coverage guaranteed for life, and cash-value accrual at a fixed growth rate.
Because of the guaranteed-for-life coverage and cash value, whole life has higher premiums than a comparable level of term coverage.
However, premiums are fixed when a policy is issued, so someone who purchases a whole life policy earlier in life will be able to retain coverage into his or her later years at rates that would be impossible with any newly issued policy.
A whole life policy’s cash value builds slowly at first and steadily over time so that a policy that remains in place long-term sees considerable growth.
Cash value growth is tax-deferred, which means that no income tax is due on policy earnings (the amount by which the policy’s cash value exceeds the total premiums paid) until the growth is actually withdrawn from the policy, which can be avoided by choosing a life insurance loan instead.
Benefits of Cash Value
During life, cash value can be withdrawn, borrowed against, or converted into an annuity—or a policy can be surrendered for its cash value, in which case coverage terminates and the insurer issues a check to the policyholder.
If that never happens and the death benefit is instead paid to beneficiaries, the payout does not qualify as taxable income for the beneficiary.
Young, healthy applicants who purchase whole life coverage early in life can lock in guaranteed, lifelong affordable life insurance coverage that doubles as a valuable asset for retirement planning.
Convert to an Annuity
A whole life policy that stays in place during most of an insured’s working life will see impressive growth that can be realized in a tax-advantaged manner, such as by converting to an annuity.
And policies that have been in place long enough reach a point where they are “paid-up.” No further premiums are owed, but the coverage stays effective and cash value continues to earn interest.
Whole life is also a good option for any applicant who needs a guaranteed death benefit—whether the purpose is estate liquidity, a legacy for heirs, or a source of funding for long-term support of dependent loved ones (such as through a special needs trust that won’t jeopardize benefit eligibility).
The static premiums are especially valuable for people on a fixed income who need guaranteed coverage and budget stability.
Healthy applicants who undergo a full medical examination often save considerably on whole life premiums compared to a guaranteed issue policy or policy with limited underwriting requirements.
After all, if the insurance company is confident an applicant is in good health, it can afford to charge less.
Even applicants with some health problems frequently save on premiums by undergoing a physical.
Not all insurers consider all medical conditions in the same way, so most applicants in need of affordable permanent life insurance will save money by going through full medical underwriting.
Universal Life Insurance
Universal life insurance is permanent life insurance similar to whole life and generally focused more on policy growth than on the insurance aspect of the policy.
Premiums are divided between cash value and underwriting costs (usually called “cost of insurance”).
Cash value growth can be fixed (interest at a set rate), variable (growth based on investment performance), or indexed (growth tied to performance of an equity index, usually with guaranteed minimum returns).
Premium flexibility is one of universal life’s most attractive features.
Policyholders can pay additional premiums to increase cash value and growth potential or pay lower premiums as long as the cost of the life insurance component is met.
Because cash value can be applied toward premiums, policyholders can elect not to pay any premium some months—if sufficient cash value is available to cover the cost of insurance.
The flexible premiums are particularly beneficial to policyholders whose monthly income and expenses tend to vary.
Universal life is ideal for applicants who want permanent affordable life insurance as a low-risk investment with solid growth potential.
Indexed universal life policies are particularly popular, as they allow policyholders to participate in strong markets without risk of much or any loss if markets turn sour.
Typically, growth is measured as a percentage of the applicable equity index’s net gains for a given month.
So, if the NASDAQ increases six percent over a month and a policy’s “participation rate” is 50 percent, cash value will grow by three percent for the month.
But, if the index sees a net decrease over the month, cash value typically either holds steady or grows at the policy’s minimum rate, depending on the terms of that particular policy.
Final Expense Insurance
Final Expense insurance policies (also called “burial insurance” or “funeral insurance”) are designed to make whole life insurance available for older applicants who need guaranteed-for-life coverage and affordable premiums.
Coverage amounts typically range from around $3,000 to $30,000, so final expense insurance is not well-suited to income replacement.
Instead, the policies are intended to provide cash to pay for funeral and burial expenses, estate administration, taxes, and outstanding debts.
However, there is no contractual or legal requirement to use proceeds for those purposes; final expense insurance benefits can be used however the beneficiary or estate executor deems appropriate.
To keep premiums affordable, final expense policies often include a one or two-year “waiting period,” during which the full death benefit is not yet effective.
If the insured dies during the waiting period, the insurance company returns all premiums paid to date, plus interest at a rate usually around ten percent.
Notably, the waiting period for most final expense policies does not apply if the cause of death is an accident—as opposed to an illness or medical condition—in which case full coverage amounts are paid out.
Limited to No Health Information
For many seniors, the limited application process is a big benefit of final expense coverage. Most policies only require a short medical questionnaire (and no exam).
Basically, if an applicant doesn’t have any of the conditions that particular insurer excludes (i.e., “knock-out conditions,” like significant heart problems or cancer), a policy will be issued.
Some insurers offer “guaranteed issue” (or “guaranteed acceptance”) final expense policies.
Guaranteed issue life insurance policies do not consider any of an applicant’s health or medical information. As long as the applicant is within the right age range, a policy will be issued.
Although guaranteed acceptance policies usually cost more than a comparable policy with some medical underwriting, they allow seniors with preexisting medical conditions access to life insurance that might otherwise be unavailable.
And, because of the waiting period and relatively low coverage amounts, premiums are usually set at affordable rates—particularly for female applicants on the lower end of the policy’s age range.
Accidental Death Insurance
Although we would not technically call accidental death insurance, life insurance, it does have its benefits and so it is worth mentioning.
With accidental death, you get coverage that covers you for death due to an accident.
Additionally, some policies offer additional coverage for dismemberment, which covers loss of a limb, loss of an eye, and more, depending on the company and policy.
There is even a double indemnity payout if the accident occurred on a common carrier, such as a plane, train, or bus.
The key to finding the most affordable life insurance is to work with an agency like IBUSA, that will shop from among dozens of top rated carriers, and align you with the best company for you, based on your specific needs, health and lifestyle.