Questions and Answers on Life Insurance: Book Review and Money Saving Tips

by Julie Rains on 30 October 2010 2 comments

Saving on life insurance without compromising your family’s future is doable. Figuring out how to get started evaluating alternatives and uncovering reasonable ways to save money without feeling pressured (either by your family or a sales agent) isn’t easy, though. A knowledgeable, experienced, and unbiased guide in the realm of life insurance is useful for this task and is precisely what I found in Questions and Answers on Life Insurance: The Life Insurance Toolbook by Tony Steuer, CLU (Chartered Life Underwriter), LA (Life and Disability Insurance Analyst).

The book helped me to:

  • Understand how insurance companies design, package, sell, underwrite, and even bill for life insurance policies
  • Find ways to get good value in an insurance policy
  • Discover techniques for approaching and interacting with insurance agents to protect your interests

Everyone’s situation is different, but these ideas may help you save on life insurance:

Research and analyze plans before you begin discussions with an insurance agent.

Talk with more than one insurance agent rather than picking the best policy among those presented to you by one person. Some agents will choose less attractive policies to present with the one they’d like to sell in order to make that one particular policy appear to be the most attractive available in the marketplace.

Don’t assume that highly-rated insurance companies automatically have higher prices.

In the life-insurance world, you can often get the best quality at competitive prices.

Buy what you need to take care of your survivors.

Do this rather than purchasing large amounts of insurance that may allow your family to increase its standard of living after your death. Determining the coverage amount isn’t simple. One approach is to purchase enough to cover outstanding debts, fund your children’s educational expenses, and replace your income for a period of time until your family members can support themselves.

Avoid policies that pay dividends, as premiums on these policies tend to be higher.

Dividends may offset the higher prices, but generally are not guaranteed. Dividends may also be taxable, adding to the overall costs associated with owning the policy.

Stay away from credit life insurance products.

These include products such as mortgage life insurance and credit card insurance. Initial pricing may seem attractive, but note that death benefits typically decline over the term of the policy aligned with presumed decreases in loan balances.

Make apples-to-apples comparisons among various types of policies.

Compare coverage, policy features (such as guaranteed renewability and rate guarantees), financial strength of insurance carriers (using resources such as A.M. Best Company, Standard & Poor’s, FitchRatings, and Moody’s), and more.

Buy a low-commission policy.

Some policies have first-year commissions that are higher than the first-year premium, and presumably these costs are passed along to the consumer. (Read more about low-cost life insurance.)

Pay premiums on an annual basis rather than semi-annually, quarterly, or monthly.

Most insurance companies charge extra for payment on a non-annual schedule. Tony recommends this APR calculator to determine the cost if you don't pay yearly.

Get the best possible report from your medical exam.

That way you will be charged a standard premium rather than a rated (or higher) premium associated with higher risk for the insurance company (and greater likelihood of paying a claim early in the policy period). Schedule a morning exam and take care of yourself before: lose weight now if you are overweight, avoid salt or use it lightly for 3-4 days before the exam, don’t drink alcohol 24 hours before the exam; avoid caffeine on the morning of the exam, and give a urine specimen before the blood pressure check, which may slightly lower blood pressure.

Be proactive about health issues that may result in a higher premium.

Ask your agent to recommend insurance companies that do not rate your disease (when you can qualify for life insurance but must pay a higher premium). Get your agent to talk with the underwriter and/or medical director to get an idea of how the disease may affect eligibility or additional charges for coverage; you may be able to show that your condition is under control and will have no impact on your life expectancy.

Reapply for life insurance if you have had improvements in your health.

Ask if the contestable period and/or suicide clause can be waived if you are replacing a policy in which the contestable period (generally two years) has passed.

Sign up for life insurance provided by your employer.

Do this especially if it is offered at no cost or low cost to you. Be forewarned that you may not be able to continue the policy if you leave the employer.

Note: I received a free copy of the book, Questions and Answers on Life Insurance: The Life Insurance Toolbook, to review. The author, Tony Steuer, holds the designation of Individual Life and Disability Insurance Analyst (one of about 30 in California). This book is an excellent resource for anyone who is considering the purchase of life insurance or who has a life insurance policy.

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Guest's picture

Also, and I could be wrong on this, but personal experience has shown me that dealing with an independent agent that you trust usually leads to the least expensive insurance for your money. That way, they simply find the best deal for you without being financially tied to one specific provider.

Julie Rains's picture

Tony (the author) mentions working with an independent agent rather than a captive agent as a money-saving approach, which syncs with your experience. I especially liked his recommendation to do some research first, then review policies and pricing just in case -- in your market -- captives offer better deals than independents.