Sometimes you want to buy something for your family with security in mind but the total cost doesn’t fit in your budget. It’s normal to believe life insurance premiums fall in the same category, however, rarely will it exceed your price point. You can find ways to put it in the budget. It’s important that you’re getting the lowest premiums available for your insurance coverage.
It’s pretty easy to get quotes for life insurance these days. In fact, online life insurance brokers usually don’t even talk to you during the quoting process. You simply hop online, fire up your favorite search engine and type “cheap life insurance.” You’ll be inundated with sites hosting what are called “quote engines.”
Quote engines are software programs that scour the marketplace for insurance quotes. Usually, the company that the agent licenses the software from has a “backdoor” to all of the major insurers. Result? You get 10 to 20 quotes for life insurance in about 5 seconds.
But here’s something few agents and brokers are talking about: most people selling you a policy aren’t actually giving you the lowest insurance rate. They’re quoting you a premium.
What’s The Difference?
A premium is the total amount of money you pay to fund an insurance policy. All insurance contracts have multiple components to them. For example, to make a term policy function, the insurance provider must calculate the probability of your death using something called “mortality tables,” factor in the insurer’s own overhead (i.e. salary for employees, commission for agents, etc.), investment costs and earnings (all insurance policies use investments to earn the money needed to pay death benefit claims), and the lapse rate for all policyholders (many policyholders drop coverage prematurely or let their policy expire without renewing – the total number of these contract cancellations is referred to as the “lapse rate.”)
The actual cost to maintain the death benefit is called the “cost of insurance.” The premium and the cost of insurance are not the same thing. It’s possible to compare two insurance policies, one with a lower premium and one with a higher premium, and have the higher-premium policy be the better buy. How? The cost of insurance.
This typically happens when you have a longer term need for insurance coverage. Let’s say you need 30 years of death benefit coverage. If you buy a 10-year term policy right now, the premium will be lower than the 30-year policy. However, the 30-year policy will be a better buy. Why? Because, at the end of the 10-year term, you’ll need to renew your coverage. All term contract premiums increase over time because they reflect your now-older age at renewal.
So, if you purchased three separate 10-year policies, you’ll end up paying more than you would for the 30-year policy.
Why A Long-Term Contract Might Be Cheaper
To continue with our example, with the 30-year policy, the insurer prices your contract based on your age at the issue date of the policy. It then collects premium in excess of the amount needed to pay for the pure cost of insurance – but it needs to do this assuming it will provide you with coverage for 30 years, not just 10. That’s why premiums for a 30 year policy tend to be a little higher than premiums for a 10-year policy.
It takes the excess premium and invests it into its general investment account comprised of bonds, some stocks, real estate, and other conservative investments. Each year, your premium, plus interest from the investment fund, goes to pay for the cost of insurance. Every year, that cost of insurance rises, but you never see it because the insurer offsets those rising costs with its investment earnings. Cool huh?
Now, compare this to a shorter-term contract. With a 10 year policy, the insurer is only banking on providing coverage for 10 years. So, it collects less premium, and doesn’t have as much time to earn interest to offset the rising cost of insurance. So, your out of pocket cost of insurance is actually higher, even though the premium is temporarily lower. When you renew that policy, it becomes painfully clear – your premium jumps dramatically.
What Is A Net Payment Cost Index?
Insurance costs are fairly transparent for all types of term policies. Insurers list what’s called the “net payment cost index” in the policy illustration that you receive with your contract. It tells you the true cost of your policy assuming you passed at the end of the policy term and is denoted as a cost per $1,000 of death benefit. So, a net payment cost index of $1.50 means you’re paying $1.50 per $1,000 of insurance. All other things being equal, the lower the cost index, the better.
The problem is that most insurance agents and brokers are taught to show you the lowest premium quote, but that doesn’t necessarily mean that it’s the best deal for you and your family.
Calculating your Life Insurance needs
Regardless of which type that you get or the length of the policy, it’s vital that you get enough coverage for your family. Not having enough life insurance protection could leave you family with thousands of dollars of expenses. There are a few instances to account for when determine how much face value you want.
Debt and final expenses make up the first bills you should want to be paid off. So calculate those and be sure your survivors would not have to worry about them if you passed away. The amount should be enough to pay off your mortgages, student loan, a business loan, and anything else that your loved ones would have to pay back.
Not only would your family have mounds of debt to pay off if your face value was too low, but they also would have to recoup any income you would’ve made. So you want to think about adding either three of five years worth of income to the total value of policy you are purchasing. This way they do not have to make lifestyle changes..
Another topic that you’ll that needs to be calculated are taxes and fees that would be related to your passing. For example, your family may have to pay lawyer fees and inheritance taxes before they receive the policy benefit. It’s valuable to account for those expenses when buying life insurance.
It’s pertinent to understand what total cost you are willing to spend before you walk into an agent’s office. No idea? Then there is a chance that they will sell you way more coverage than you need, which means much higher insurance premiums.
Working with an Independent Insurance Broker
The simple way to get life insurance rates, and not getting expensive coverage, is to get dozens of quotes before you design that policy that’s best for you. The insurance companies are different, and every insurance agent will be able to offer you different quotes based on the company’s underwriting, so you could get drastically different rates based on which company that you choose.
Instead of wasting your time calling twenty or more life insurance companies, let our independent insurance agents do all of that work for you. Instead of having to answer the same questions over and over, our agents can gather those answers and then bring you personalized quotes. It will save you both time and money on your insurance plan.
When you’re working with independent agents, do not fret about upselling of expensive coverage or additional coverage that you do not want. It’s our goal to get the best policy to meet your needs. We can help you get quality insurance at an affordable price.
Tomorrow isn’t promised. But you can make a promise to your family that they won’t endure years of debt by purchasing life insurance protection. We understand choosing investments can be tiring, but it doesn’t have to be. Our agents are here to make it quick and simple. Life insurance is the best investment you can make for the future security of your family.
Got concerns on how to find cheapest rates? Our number is listed below and we’re standing by with tips, tricks, and insight on how to best deal with your current situation and how life insurance can be a tremendous investment.
For a quote please call us at 1-888-552-6159.