You’re not going to believe how easy it is to cut your life insurance costs by as much as 25%. You can easily save a bundle just by eliminating unnecessary or duplicate insurance you don’t need!
For starters, never – we repeat, never – think of insurance as an investment. Any insurance policy you use as an investment is costing you much more than you need to be paying. You can buy all sorts of investments that will treat you better than an “insurance” investment. We’ll talk more about these later.
Right now, though, we want you to buy insurance as insurance – an ironclad guarantee that you or your loved ones will still be able to make ends meet if faced with a permanent loss of income.
Insurance sales agents aren’t dopes. They know exactly which emotional hot-buttons to push to get you to ante up more money. Here are three common pitches you should avoid:
1. Accidental death coverage. Statistically, it’s extremely unlikely that you will die in an accident.
2. Child life insurance. Generally, this is one of the biggest rip-offs in life insurance. Unless your child is the major family breadwinner, you don’t need insurance on your child’s life. Insurance agents are super-savvy on this one. They’ll say you will guarantee your child’s insurability when they’re grown. Absolutely false.
Unless you’re the parents of Shirley Temple, you’re probably not dependent on your child’s income, right? If you’re going to buy an insurance policy on your child in order to pay for your son’s or daughter’s college education, put the money in U.S. Government EE Savings Bonds instead. You’ll earn at least 4% a year, free of state and local tax, guaranteed by Uncle Sam.
Insurance agents will also prey on you by saying, “Oh, but it’s such a little amount of money,” or “It will pay for the funeral costs.” It doesn’t matter. If it’s a $10-a-month premium, that’s $10 you could put toward a savings bond. You can use that money to pay for a funeral if you need to – or for all the joyous milestones in your child’s life.
3. Whole-life insurance. Term-life insurance, not whole-life insurance makes the best sense for most people.
Whole vs. Term?
Which is better for you, whole-life or term insurance? The answer could be neither. If you’re not married, have no children or are living off your investment income, you may not even need life insurance. But if you do need life insurance, we want you to get the best coverage at the lowest price. In most cases, that means buying “guaranteed, renewable term insurance with level premiums.” We prefer term-life insurance for anyone under 50, and a plain vanilla whole-life policy for those of us (gulp, that’s us!) 50 and over.
(Our rule of thumb: Buy enough insurance to at least equal 8-10 times the breadwinner’s annual gross salary. If you’re a two-income family, insure each spouse for six to eight times his or her annual gross salary. It’s that simple.) “Guaranteed renewable” means that no matter what happens to you during the “term” of your policy, you are guaranteed to be able to renew the policy. With level premiums, your premium will stay steady for the duration of the term.
Eliminate Duplicate Coverage
Now it’s time to reclaim the money you’re paying as premiums for duplicate life insurance coverage, and eliminate duplicate coverage once and for all. Drop these types of insurance:
- Credit card life insurance. Basically you’re paying premiums so that your card will be paid off when you die. Chances are your balance on the card at your death will never be as high as the amount of premiums you pay out.
- Mortgage life insurance. If something should happen to you, the cash proceeds of your term policy can be invested and your spouse can make mortgage payments out of those proceeds. The tax deduction for the mortgage interest remains intact, and you earn interest on your investment instead of letting the bank earn the interest.
Some mortgage companies require you to carry mortgage insurance until you’ve built up a certain amount of equity in your home (usually 20%). Call your mortgage holder and ask them when you’ll have enough equity built up to drop your mortgage insurance.
(For more proven ways to save money on all types of insurance, read 7 Ways to Save Money on Insurance.)
Ready to get rid of the extra insurance and put the money back into your pocket? Okay. Write your mortgage company and/or credit card company a letter using our sample letter for guidance (For other helpful sample letters, visit us at Dolans.com):
Upon receipt of this letter, please cancel any and all forms of (credit card/mortgage) life insurance I may currently be carrying on my account, cancel any premiums I am being charged, and refund any overpayment I may be entitled to.
Ken and Daria Dolan here, the first-family of personal finance, and we’re thrilled Wallet Blog asked us to share our tips for how you can save money on life insurance. Visit us at Dolans.com for more money saving tips! To get timely advice on a wide variety of topics, sign up FREE for our weekly e-letter Your Money Matters with Ken & Daria Dolan. We will help you get more bang for every buck you spend…erase debt faster than you ever thought possible…save more money without living like a pauper… Get it delivered right to your inbox and make smarter, more confident choices with your money, every day of your life!