Financial Literacy - Insurance
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Slash your insurance costs

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5. How to cut costs on life insurance

Life insurance rates for term insurance policies have been going down, so if you haven't shopped in a few years you may be able to get a better price and lock it in even though you're older now.

Term life insurance rates have been dropping over the past decade primarily because people have been living longer. But it's also because insurers are going into a lot more detail when underwriting the policies -- they're looking at many more factors when setting the person's price, including details about their medical condition. "In the past, they'd generally have just three pricing categories: preferred, standard and smoker," says Lankford. "But now most insurers have five or six categories, and the prices for the healthiest people have dropped the most."

Be wary of advice from anyone with a vested interest. Agents get big commissions for selling cash-value policies. "If it doesn't make sense why you'd need the recommended coverage, get a second or third opinion," Lankford says. Check with unbiased financial professionals.

If you buy a cash-value policy, go no-load: Ameritas, USAA, and TIAA-CREF offer no-load life insurance policies.

Use Bankrate's life insurance work sheet to help you shop.

If you're young and no one is depending on you financially, then you don't need life insurance. If your spouse couldn't continue paying the mortgage without your income, you might need it. And almost everyone needs life insurance after they have kids -- whether they earn an income or stay home with the children, according to Lankford. "The surviving spouse would have to pay a lot of money to provide extra child care if a stay-at-home parent were to die," she says.

The general rule of thumb for coverage is six-to-10 times your annual income, but someone with five kids and a nonworking spouse would need more than someone with a working spouse and one child. Use Bankrate's calculator to help determine your life insurance need.

If you're buying term insurance to provide a payout in the event you die before your kids graduate from college or before the mortgage is paid off, a 20- to 30-year policy is best, says Lankford. After that, you may not need coverage.

You may need life insurance for longer than that if you have a special-needs child, or you have a business or estate-planning considerations. In that case, a cash-value policy, such as a universal life insurance policy, may be necessary because it doesn't have an expiration date.

"I generally don't recommend cash-value policies as a savings tool, which is how they're often sold," Lankford says. "It's better to max out your 401(k) and IRA first, which have lower fees and don't require you to buy expensive insurance that you may not need."

You'll get the best price if you buy when you're young, but you don't want to buy before anyone is financially dependent on you. To lock in the best price, buy before age 40.


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