FREQUENTLY ASKED QUESTIONS

If you are looking for a cheap life insurance policy, the good news is that you probably have some options.  Life insurance rates also keep coming down over time as people continue to live longer and survive diseases better, and life insurance companies are continuing to add more product offerings to their lines.  Here we explore different options for the lowest cost life insurance policies.

Standard Term Life Insurance

The least expensive type of life insurance policy judged by size of premium payments and cost of insurance is a term life insurance policy.  This is because term life insurance has no cash value, and expires before the insured is hypothetically expected to pass away.  Term life insurance is not permanent, and insurance companies calculate that the chances of an insured person dying during the policy’s active years is lower if the insurance will only last for a limited amount of years.

While term life insurance is the least expensive policy to own when viewed through the spectrum of total cost of insurance, term life insurance provides the lowest expected rate of return for a policy owner, almost zero.  If you have consecutive term life insurance coverage over the course of your life, you will still expend a chunk of money annually or monthly, and as you get older term coverage gets more and more expensive to implement.

Term is Only a Few Dollars a Month

The fantastic thing about term life insurance, is that you can get coverage for only a few dollars a month.  You see offers for policies like this all the time on the television and hear them on the radio.  Keep in mind, that those advertisements are usually only showing you a low death benefit, so they are not really enough coverage for most people.  However, there is truth to the fact that most people can get a really good amount of coverage for a really affordable rate.  A policy for $250,000 may cost a 35 year old male who is in good health may get coverage for about $10 a month!

The Cheapest Policy may not be the Best

Keep in mind that the least expensive policy that you can find may not be the best policy for you.  Life insurance is more complex than most other consumer insurance.  You need to make sure that you have enough coverage, that you have that coverage from the right amount of time, and that you purchase that coverage from a life insurance company that is going to be around for a long period of time.  Do not assume that all life insurance coverage is equal.

Group Life or Employer Offered Life Insurance

If your employer offers life insurance coverage as a benefit, it likely provides you some coverage for free.  Normally, this is limited to either one or two times your annual salary.  While this is not usually enough coverage to satisfy all of your life insurance needs, it may be, and it is a good base of coverage if not.  Keep in mind that this benefit is no longer free if you are no longer employed.

You may want to ask if you can purchase additional coverage at a group rate.  If so, you might be able to add a significant amount of death benefit for a reasonable cost.  There is still usually a cap on the total amount of coverage, often $250,000.  Your benefits administrator will be able to tell you more about the options available to you from your employer.

Whole Life Eventually is the “Cheapest” Long Term

A whole life insurance policy on the other hand not only is 100% assured of providing a return to either the policy owner or the beneficiaries, but actually will pay for itself over time.  This is especially true when the whole life insurance is purchased from a mutual life insurance company, meaning the company is actually owned by the policy holders.  These whole life policies tend to pay the highest rates of dividends, and over time the dividend payment can actually grow large enough to pay the entire premium by itself.   This means the policy will become not only self sustaining, but the cash surrender value will grow automatically with each passing year.

When viewed through a long term perspective, it not only is cheaper to own a whole life insurance policy, but the insurance policy can actually make you money.  It is for this reason that whole life insurance is viewed as an investment, and a way to save money for clients.

Whole life insurance also pays a dividend, which you can use towards premium payments.  In most whole life policies, the dividend payment will eventually become larger than the premium payment, making the policy free to keep in force for the remainder of your lifetime.  Your life insurance agent will be able to produce an illustration, showing projected dividends over time.

Other Permanent Forms of Life Insurance

Variable universal life insurance policies and even traditional universal life insurance policies may provide an even higher rate of return than a whole life insurance policy, but they could also provide a lower rate of return.  Total rate of return depends more on funding levels, timing of funding, market performance, and changes to cost of insurance over time.  Generally speaking these are a riskier form of life insurance coverage than whole life insurance, and may result in a lower or higher rate of return to the owner.  Poorly funded policies may end up being much more expensive than an equivalent level term policy over time, but well funded, highly performing policies may almost rival investment account returns.

Conclusion

The least expensive form of life insurance is not as simple and straightforward as it may seem.  For the lowest cost of insurance, and lowest premium payments, choose term life insurance.  For the best long term value, a permanent form of life insurance such as whole life insurance will maximize the value of the premiums.  And never forget, that while your employer may not be able to offer you as much group coverage as your family would need to replace your income and maintain their lifestyle, you should take advantage of your employer offered life insurance as much as you can.