Term life insurance – advanced saving techniques

Term life insurance – advanced saving techniques

You’re looking for term life insurance, so you’re scouring the web running quotes from different websites. Comparing the quotes and trying to pick the cheapest, right?

But what if those quotes are not indicative of the least expensive premiums you could pay? What if there were further, unpublished discounts available on your term life insurance policies? You could save even more.

(Why are these discounts unpublished? Well, they’re available to most life insurance brokers. Our suspicion is that many life insurance brokers are either not knowledgeable enough to be aware of these discounts, or they’re simply not interested in doing the work. The Term Guy, a Canadian life insurance broker specifically identifies these discounts, and offers them whenever they’re available.)

Discount 1: Backdating

What if your birthday was yesterday and you’re applying for life insurance today? Wouldn’t it be great if we could back up and apply yesterday when you were a year younger? That’d lower your age by one year for the full duration of your term policy – 20 or 30 years!

That’s what backdating does. You artificially ‘start’ your policy a day before your last age change, sometime in the past. The policy is issued as of that previous date, and you start paying premiums from that date; but of course all future premiums are for your reduced age. The tradeoff is that you have to back-pay premiums to just before your last age change, but the substantial savings can often make this worthwhile. Note that many life insurance companies use your ‘closest birthday’ to calculate your age for insurance purposes,so the date you’re looking for isn’t your birthday but six months past your birthday.

Backdating can save you hundreds a year over the course of your term life insurance policy.

Discount 2: Two insureds

Life insurance premiums are based on two factors – the unit cost of life insurance, and an flat monthly administration fee. Two insureds, you should pay two unit costs of life insurance and two monthly administration fees. However with some companies, placing two insureds on one policy means only one policy fee. With policy fees being $5-$10/month, you can easily save $60/year for the next 20 years on your term life insurance just by insuring two people on one policy. Note that this is two individual coverages and not a joint policy.

Discount 3: Term Layering

If you assume that your need for life insurance decreases over time, you could purchase a flat term 20 now, then reduce the coverage in the future. A far better way to do this (because the premiums are lower) would be to layer two types of coverage in one policy, i.e. $500K of term 10 and $500k of term 20. That layering would give you $1MM of coverage for the first 10 years (consisting of both the term 10 and term 20 layers of coverage). After 10 years you cancel the term 10 layer, leaving you with $500K of coverage for years 11-20 (from the remaining term 20 layer).

Term layering can save you hundreds of dollars in the first 10 years of your life insurance policy.

Discount 4: Term Stacking

If you’re seeking a term 20 or term 30 life insurance policy, term stacking can save you huge in the first year of your life insurance policy. The key is to use a company that lets you use the ‘exchange option’ in the first year of the policy. Not all companies allow this. The exchange option lets you switch from one term (say a term 10) to a longer term (say term 20 or term 30).

Here’s how it works. Instead of initially applying for a term 20 or term 30, you instead apply for a term 10 policy – the savings are in the substantially lower premiums for term 10 over term 20 or term 30.

Then, just prior to your next age change, you use the exchange option to switch to a term 20 or term 30 (which is just singing a form requesting that this happen). Your premiums for the term 20 at this point in the future? They’re the same as they would be if purchased the term 20 today, because you do the exchange before your age increases – so the premiums haven’t increased. That saves you the cost difference between a term 10 and term 20 policy until your next age change – about half!

For term stacking, remember that your age changes with most companies for life insurance at the midway point between your two birthdays, so if you’re just past six months since your last birthday then you can realize almost a full year of savings!

These four techniques are advanced and vary from person to person – sometimes none of them are available and the least expensive quote is the least expensive policy for you. Sometimes the discounts can be stacked, for even more savings (i.e. term stacking and two insureds). Because they vary in their availability, you’ll need your life insurance broker to review your specific situation to determine which ones are available for you. The only life insurance broker we know that uses all four of these in their daily practice (as we noted above, many brokers aren’t familar with some of these discounts) is The Term Guy – you can visit their website and request a quote and consultation on these additional discounts.