How to Spend Money Wisely » Insurance

Saving on Life Insurance Premiums

Everyone happy with life insurance premiums? Of course not – we all begrudge paying any type of insurance premiums, and life insurance is likely at the top of the list. Combine that with an industry that seems fond of overselling, and you’ve got a country full of consumers who are always suspicious that they’re overpaying for life insurance. So here’s a list of concrete examples you can use to ensure you’re paying the lowest premiums.

Ask for a Compulife(R) quote

Compulife is a software company that provides insurance companies and brokers with a database of insurance company premiums. That way you’ve got most of the companies available to you, sorted by premium. Otherwise you’re starting with the foregone conclusion of just working with your agent’s favourite 3 companies. Most brokers have the ability to shop the market, but not all will unless you specifically ask. And if you’re being sold on other factors like large companies, then don’t you want the cheapest, large company? Or maybe you like the savings of a smaller company (aside: there’s no correlation between size and competitiveness. Large and small companies both frequently have competitive premiums.) Compulife maintains a free online life insurance quote system for consumers at www.term4sale.ca. I also run the same database on my website at www.insurecan.com. Same numbers on both sites, my website has nicer pictures though.

Size doesn’t matter

Unless you’re shopping for some huge amount of life insurance, a small company is as good (or as bad, depends on your perspective) as a large company. If you’re concerned about stability, there’s no correlation in Canada between company size and stability that I’ve seen. Plus, the entire industry belongs to an organization called Assuris, where they all guarantee all the other companies’ life insurance policies within certain limits. So if a smaller company is cheaper, it’s probably as good as a more expensive ‘big’ company. Either way, if you’ve got a Compulife(R) quote, and you do want a larger company or a brand name, you’ll be able to define how much extra it’ll cost you to deal with a specific company just by looking at the quote.

Quit smoking

Quit smoking – anything. Nicotine or marijuana even once in the past year means you’ll get smoker rates and that’s about double the nonsmoker premiums. Pipe and cigar smokers are occassionally an exception. But in the end, if you can quit you can lower your premiums. And if you have quit, then after a year contact your existing insurance company for reconsideration.

If you recently quit smoking or are planning on it, buy a shorter term. If you need 20 year term for example, buy a 10 year term for now. Then once you quit smoking for a full year requalify for non-smoker premiums and then bump your policy type up to a 20 year term. Between now and then you’ll be paying the cheaper 20 year term rates. There are a few life insurance companies that offer you the ability to bump up from a 10 year term to a 20 year term in the first five years, you may want to investigate those. As in #4, make sure you buy a policy that has a conversion option.

Having the right amount is more important than having the right type

If you’re on a restricted budget, buy a shorter term rather than buying less life insurance. That way if you die (which is what we’re preparing for here) you’ve got the right coverage. And I assure you, nobody who’s received a death claim has ever cared if the insured had whole life or 10 year term – we only ever care ‘how much’. This strategy means you need to take a medical exam and buy a new policy in the future, so make sure you only buy term insurance that has a ‘conversion’ priviledge. This lets you buy permanent insurance with no medical exam should anything go wrong medically.

Rated or expect to be?

Have your broker ‘pre-shop’ companies. A broker can take down information (more is better) and contact a bunch of companies to get an initial estimate. Sometimes you can find a wildcard company that’ll give you a much lower rating than other companies. And sometimes, you can’t find that wildcard company – but there’s no harm in asking. Insurance companies and brokers dislike this extra work, but it’s your pocketbook – make them do it. If you’ve been rated on your policy already, first accept the policy, then have your broker do the shopping after the fact. Here’s an illustrative example:

  • Company 1: Client applies and receives $2500/year rating. I contact company 2 for a second opinion.
  • Company 2: No rating, wants an exclusion clause for scuba diving instead. I contact more companies.
  • Company 3: $2500/year rating.
  • Company 4: $2500/year rating.
  • Company 5: No rating, wants an exclusion clause for scuba diving.
  • Company 6: Asks for additional information on client and scuba diving. I provide the information. Company responds with standard policy – no rating, no scuba diving exclusion.

So, some of the companies feel that there was an underwriting issue that was worth $2500/year but didn’t care about scuba diving. Others didn’t see the same underwriting issue, but cared about scuba diving. And one company didn’t care about either the scuba diving or the underwriting issue. While the companies are mostly consistent, they are certainly not ‘always’ consistent.

Take the medical exam first thing in the morning

It’s called a ‘fasting blood test’. Discuss this with the paramedical who calls to book the medical exam, but you want to minimize any false readings in your bloodwork as the result of your breakfast.

Tell the insurance company everything

In fact, don’t just give them the facts, tell them all the surrounding details. Give them dates, diagnosis, cause, treatment, whether it’s resolved or ongoing, medications, and so on. Don’t leave them guessing and have them assume the worst. If you’re not sure, tell them anyway. This is perhaps the most counterintuitive concepts because it seems like the more we tell them, the worse it’ll be for us. But I have a saying -“everybody’s got something” – there’s hardly ever a clean case for life insurance. And the insurance companies still issue lots of life insurance. And you’ll likely be surprised about what they don’t care about (and perhaps, what they do care about).

A top ten list with only 9 items won’t work. So here’s the final one to round it out to 10 items.. Make all your insurance decisions financial not emotional. Buy insurance to cover catastrophic financial losses – and it helps to write out a list. What’s the financial loss? Can you define it on paper financially? (i.e. If this happens, I lose $X dollars?). Is it catastrophic, i.e do you need to insure it? Or are you buying a feel good decision (i.e. If this happens, I don’t ‘lose’ $X, but I like the idea of having that money given to me.

Comments

  1. Mitch Reynolds

    Hi there, this is a good read indeed. I will ensure that I keep these points in mind while getting life insurance policy so that I pay lowest premiums. Even I do not want to be under suspicion that I am paying highest sum of premium! So, thank you!

    • Brian Poncelet,CFP

      Mitch,

      The lowest premiums? Can you get you money back?
      Sorry lowest premiums may mean only term coverage!
      Do you buy a car based on the cheapest price!?

      Here is the reason that idea does not work in the real world. The best rate term for a 42 year old male term 30 is sold by Primerica.

      So say at age 68 you have cancer or a heart attack and want to convert the term to permanent. With Primerica you can’t. The $74 per month coverage jumps to well over $700 a month! and keeps going up.

      Brian

      • LifeInsuranceCanada.com

        Brian, I’m just revisiting and older post and saw your comment about having cancer at 68 with a Primerica policy.

        Very poignant for me – I took that exact phone call very early in my career. Someone approaching 70 diagnosed with cancer and a term policy called me and asked what to do. There’s an immediate answer that people in this position love – simply use the conversion option in your policy that lets you exchange the term policy for permanent coverage, without taking a medical exam. Except then he mentioned he had a Primerica policy, so no conversion option.

        At that point all I could do was express my sympathy for his predicament.

        But that conversation reinforced for me why I never offer a policy that doesn’t have conversion. Thankfully, almost every term policy in Canada does offer it, for free.

  2. Brian Poncelet,CFP

    Tom,

    Term4sale (Compulife) or other internet run insurance quotes should only be used as a guide. It has a number of limitations.

    I use Compulife on my site http://www.rightinsurance.ca/quote.html

    For example Primerica can not be converted into permanent coverage! It does not state that on Compulife or term4sale!

    Also, other insurance companies have limited options if you want to convert. Compulife, term4sale does not tell you that.

    Brian

  3. Brian Poncelet,CFP

    Hi Buttskiss,

    The site you linked to seems to be a link to Cambridge Insurance which offers auto insurance.

    How about http://www.rightinsurance.ca/quote.html

  4. Allan

    Wow quite a variety of opinions in this thread on cheaper insurance options. I like Brian’s observation about non convertible term life insurance. Being an ex Primerican I know they don’t think you should ever have anything other than term insurance but sometime due to circumstances the client just was not able to make any savings and hits the end of their term and still needs a bit of affordable insurance. Conversion is certainly a good option in this case.

    Another option right from the start would be a form of whole life insurance called Term 100 where you are covered for your entire life but it has no savings component. It is more expensive than the shorter term insurance but a lot less expensive than the cash value whole life policies which in many cases is a good base policy IMO.

  5. David - Beaconlifefunds.com

    A company track records on settling a insurance claim goes on top of my book. I have some relatives who have problems claiming their life insurance. Either it is too long or too hard. That is not what we paid for right? Anyway nice tips there Glenn. Nice avatar too :).

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