Purchasing Life Insurance on a Budget

The following is a guest post by Betsy Fallwell. If interested in submitting a guest post, please read my guest posting policy and then contact me.

I’ll admit that sometimes I look at our life insurance payment each month as a waste. However, life insurance does play a critical role in many financial game plans, especially for young families.

So, how can we minimize our life insurance costs without compromising its crucial function?
Here are 6 keys:

1) Buy only the amount of coverage you need. You aren’t trying to win the lottery in the event that you or your significant other dies unexpectedly. Your goal is to cover existing expenses and maintain your current lifestyle. Use this life insurance calculator to determine how much you need. By purchasing the correct amount of coverage, you can ensure that your family is protected without unnecessarily high monthly premiums. If you are single and have coverage through your employer, you may not need to purchase any additional coverage. If you are the primary breadwinner and have several children, you could easily need coverage in excess of one million dollars.

2) Buy term insurance only. This is what will have the most impact on your bill. Whole life insurance, the alternative to term, is 10-15 times more expensive. Whole life blends savings (with a poor return rate) and insurance into one monthly premium. Bloated fees, administration costs and commissions are hallmarks of whole life policies. Buy term insurance only and invest the difference between the term and whole life premiums. Use this term versus whole life calculator to see the full impact of this decision.

3) Buy only for the period of time when you will need coverage. Once you no longer have financial liabilities like a mortgage, college tuition or children living at home, you no longer need coverage. When you buy, make sure you have a good grasp of when these important milestones occur so that you don’t buy a 30 year policy when you only need 20 years.

4) Price compare, as you would with any other product. Get the best rate possible for you. Also, make sure to purchase from a strong company (“A” grade or better) as rated by any of the three major rating agencies (AM Best, Fitch or Moody’s). If you have to re-buy later in life because your insurance company went bankrupt, it will be much more costly.

5) Don’t delay. Buy life insurance as soon as you realize your need. The younger you are when you purchase your policy, the cheaper it will be.

6) Make healthy choices in life. That’s right, stop smoking. Life insurance is much more expensive for smokers. Also, if you make major positive health changes like losing a significant amount of weight, lowering your cholesterol or no longer smoking, you might be able to re-buy insurance at a cheaper rate, despite being older.

There can be a very emotional aspect to life insurance, since you are processing what life will look like if you or your loved one died unexpectedly. Stick with these tips and make an informed, intellectual decision to protect yourself and your family without bursting your budget.

Author Bio: Jon Emge is a Senior Advisor and Content Manager, originally from America who moved to Liverpool because of his love for the beatles. He is a published author and has assisted and advised clients on personal finance. In his spare time he enjoys listening to music, going to the odd festival and practicing his poetry skills!

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