How Much Life Insurance You Buy

How Much Life Insurance You Buy One of the easiest ways to control your life insurance costs is to make sure you buy only what you need. Some people buy life insurance based on some general rule such as 10 times income. That’s not advisable because it is likely to lead to either insufficient coverage or excessive coverage. The only way to know exactly what you need is to do a thorough assessment of your family’s needs, calculating the cost to replace income, pay off debt and pay for future obligations. Also, it is important to note that insurance premiums are often discounted at different coverage thresholds. For instance, a $1 million policy may cost less than a $850,000 policy due to a premium break at the million dollar threshold. You can find premium breaks at $250,000 and $500,000 thresholds with some insurers. How You Pay for Life Insurance Many people pay for their life insurance policy through monthly payments or automatic drafts from their bank account. While this is certainly a convenient and cash flow-friendly way to pay, most insurers charge a fee for this privilege. You can lower your annual life insurance cost by as much as 10% by paying in one annual installment. (For more, see: Understanding Different Types of Life Insurance.) Shop and Compare Life insurance rates have come down sharply in the last decade and competition among life insurance carriers has grown fierce, especially with the ability to shop and compare online. It’s easy to compare premiums between dozens of carriers. But, the premium is only one, and perhaps the least important point of comparison. Just because one company’s premium is lower than another based on your age and general health, the underwriting standards can vary widely between companies. A company's financial stability is also important to consider. One company can offer a better standard premium rate, but it may be more difficult to qualify for it based on their underwriting guidelines or they may have a low credit rating. Some companies may promote an extremely competitive “super preferred” premium rate, yet less than 1% of applicants can qualify.