By Joel Ray, financial advisor
Saving for a rainy day is passé. Today, you need enough to help you through not just the financial emergencies you may face in life, but your retirement years too.
The responsibility of retirement planning and putting away money for the future is yours alone, and making smart financial decisions is crucial.
One of the main components of your portfolio should be a life insurance policy, but saving money on these is tricky. Spend too little, and you’re at risk of being under-insured, but spend more than you can afford and you’ll have a hard time paying the premiums.
HOW TO MAXIMISE YOUR LIFE INSURANCE COVERAGE?
Life insurance can benefit you and your loved ones both during and after your lifetime, but you need to put in the time and effort to find the right fit. It’s best to consult an independent insurance advisor to discuss your options, since their expertise and objective advice can be invaluable.
Consulting an advisor before you buy a life insurance policy can help you save between 50% to 70% on premiums, using tried and tested strategies like:
1. Buy a policy early – You’ll get the lowest life insurance rates when you’re young and healthy. If you invest in a policy when you’re between 20 and 35 years old, the premiums will only increase by 3% to 5% every year. After 35, though, they will start to go up by 5% to 7%.
By the time you’re in your 50s, the annual increase will be 8% or more, and between 10% to 12% when you’re in your 60s. Other than your age, insurance companies also consider your health (which declines as you get older); so buy insurance as soon as you can.
2. Take the medical exam – ‘No medical’ life insurance policies typically cost up to three times (which works out to hundreds or even thousands of euros) more than plans where you need to get a medical exam. Not only that, they also offer lower death benefits than fully underwritten plans.
It’s not all that inconvenient to get a few tests when it can save you so much money, so if you’re young, fit and in good health, don’t skip the medical exam in standard policies.
3. Get in shape – It’s no secret that life insurance premiums are lower for those who are in good health, so losing weight might be a good place to start. Most insurance companies have a ‘health class’ system for setting premium slabs, with a difference of up to 25% between each.
If you’re just a little over the target weight to qualify for a certain class, losing a few pounds and improving your lab levels (cholesterol, BP, etc.) will help you save on the high premiums.
4. Pick annuity death benefits – You can save between 10% to 30% on premiums when you opt for annuity payouts instead of a lump sum death benefit, so you can get the same coverage at a much lower cost this way.
With an annuity settlement option, your dependents will receive a certain fixed sum over a pre-determined period of time, which will help them meet expenses in case of your death. Remember, not all life insurance plans offer this option, so speak to an independent agent when you’re considering it.
5. Buy multiple policies – Most people buy life insurance as a means of income replacement, to help pay for expenses like mortgage or college tuition and to ensure that loved ones will have financial protection. The common belief is that investing in one comprehensive plan is most cost-effective, but that’s not always so.
Joel Ray, financial advisor
You end up paying too much in a larger plan after you’ve paid off the mortgage or your kids graduate college, so opt for multiple staggered or ‘laddered’ term policies instead. These mature at different times, and based on your needs, you can choose whether to renew each one or not.
… so if you’re young, fit and in good health, don’t skip the medical exam in standard policies
There are many other factors that determine your final premium, and an insurance advisor can help you understand these in detail.
Everyone has unique financial needs, goals and abilities, so your investment advice will have to be customised. Best leave that to the experts!
Photo (main): Steven Worster
About the blogger
Joel Ray is an experienced financial advisor and his areas of specialisation include retirement planning and risk management.
When Joel is not working with clients, he is busy creating informative blogs and whitepapers.
You can also check out his fiscal blogs at Lifecentra.