Don’t let the title fool you—by “cheap”, I mean the best value life insurance for your money. In this article, we’ll take a look at the most affordable selection of life insurance companies and their offerings for 2019.
The Cheapest Life Insurance: Term Life
When going with the most affordable option, we simply have to go with Term life insurance.
For most people, it’s the most cost-effective solution for providing your dependents with a death benefit.
The price difference between term and whole life or universal is huge. And while each type has its own pros and cons, price-wise, term life insurance is the way to go if you’re looking into spending the absolute minimum for coverage.
Affordable Life Insurance for Low-Income Earners
Term life insurance is the best option for people on the lower end of the income spectrum. Why? Because term life allows you to choose the length and amount of coverage without the need to pay for the cash value portion that is found in permanent and universal life insurance. This no-frills approach makes it cheaper and more flexible.
Term life insurance is the most economical choice for people who don’t want to pay a lot but still want good protection.
Average cost of Term Life Insurance 2019 ($500k coverage)*
|Age||Monthly Premium||Annual Premium|
Source: Value Penguin
The 3 Types of Life Insurance Compared
In case you’re still wondering if Term life is indeed your best bet for affordable life insurance, let’s compare them to the other 2 types of protection: Whole and Universal Life.
Term Life Insurance
- Also known as “Pure Life Insurance”
- Cheapest option, most straightforward approach to getting protection
- Simply choose your preferred term (length of coverage), no forced cash value component
- Most premiums stay the same for the duration of the term
- Most policies offer the option to convert it to Whole life
Whole Life Insurance
- Offers protection that lasts the policyholder’s lifetime
- You pay for the death benefit and cash value feature (guaranteed rate of return)
- The cash value feature allows you to use it for loans or withdrawals during times of need
- More expensive than term because you also need to pay for the cash savings portion
- Policy and death benefit premiums are both fixed
Universal Life Insurance
- Generally considered as a mix between term and whole life
- Provides more flexibility with premium payments compared to whole life
- Lifetime coverage
- More flexibility with the death benefit
- The interest rate on the savings portion may affect the price of premiums (better rates, lower premiums and vice versa)
- It’s critical that payments are made on time otherwise it may negatively affect both premiums and death benefit
- Since it also features a cash savings portion, you’ll pay significantly more versus term
How much do I need to pay in life insurance premiums every year?
Policygenius claims the average cost of life insurance in the US is around the $300-400 range (per annum). Note that costs depend on different factors (as explained below) and on the length and amount of coverage. Whole life and universal can cost significantly more ($500-upwards, annually).
What affects the cost of your life insurance?
- Age – The older you are, the more expensive your premiums will be. Due to declining health, you’ll be exposed to more risks and a higher mortality rate.
- Gender – Men and women have different life expectancies. This is a factor in determining premium costs.
- Health and medical history – The more healthy a person is, the better (cheaper) life insurance they can get. Alternately, expect to pay more if you have existing health conditions or have below-average health.
- History of tobacco use – If you’re a smoker (or used to be), your premiums will be definitely higher. Smoking is bad for your health, and it exposes you to other potential diseases as well, thus the higher cost.
- Family health and medical history – If your parents or relatives have known health issues or diseases, it will likely drive up the price of your premiums.
- Occupation and hobbies – Working on a high-risk/hazardous environment expose you to more risk which results in a more expensive premium.
- Driving history – If you have a good driving record, you don’t have to worry. However, underwriters will consider this a risk-issue if you have a less-than-stellar driving history.
- Credit history – Your ability to pay your debt is considered too when buying life insurance.
How much life insurance will I need?
Each person will have his or her own unique set of needs in terms of coverage. Let’s take a look at some of the biggest factors that affect our buying decision when it comes to life insurance:
|Savings and Existing debt||Income replacement||Estate planning and management|
|Leaving a legacy||Business ownership||Long-term care|
|Children||College expenses||End-of-life expenses|
Questions to ask yourself when deciding how much life insurance to buy
Do you have debt other than your mortgage? If yes, how much?
Paying premiums on a monthly or annual basis can make an impact on your budget. If you’re going to be paying life insurance premiums, make sure you won’t have much difficulty paying off your other obligations. The last thing you want to happen is to get into more debt.
How much do you spend and how much do you save each month?
It’s all about knowing your budget. Too often, most people just wing it when it comes to their expenditures. What they don’t know is that even a simple audit of their most common expenses will allow them to be more conscious and purposeful with the things they spend money on.
Knowing how much you can actually spend on premium payments will help a lot in determining how much life insurance you should buy.
Do you have other sources of income?
If you only have one way of earning money, the more important it is to get sufficient life insurance protection. Think about it: When you die, your loved ones will have great difficulty with their expenses since they lost the primary wage earner.
However, if you have other means of earning money, (i.e extra job, passive income) you’ll be in a better position and that will allow you to perhaps choose a shorter and less expensive coverage.
How much money will you need to replace your income?
Say the family breadwinner earns $42,000 annually. Ideally, that person will need enough coverage that will allow him or her to invest it in something that will net an amount close to $42,000 per year. Assuming it placed in an investment vehicle that earns an average of 5%, you’ll need coverage that amounts to $840,000 to yield earnings of $42k.
Consider other long-term financial commitments
Paying for your kids’ education, retirement savings, buying a new car, and other similar big-time expenses will take a big portion of your budget. Be realistic with what you can afford, it’s not ideal to go too cheap or too expensive on life insurance simply because you can’t make a good estimate of how much you actually need.
I already have insurance through my work. Do I need a separate personal policy?
In most cases, the answer is it depends. While there are plenty of companies that offer these to their employees, it may not be enough to cover your beneficiaries’ financial needs especially if you have a family.
Employer-sponsored life insurance may be enough though if you are single and don’t have significant financial responsibilities but it truly depends on your situation.
How to get the best cheap life insurance
With dozens of insurance companies to choose from, picking out the best one for your needs can be difficult. Here are some of the top things to look into when shopping for low-cost life insurance.
- Look at the overall value – Each insurance provider will have their own take on pricing and options on their term life insurance. One might quote a 10-yr, $250,000 coverage say, for $20 a month while another may price it at $30.
Does this mean you should pick out the cheaper life insurance policy automatically? Not necessarily. While price is perhaps your main consideration (given you’re reading this topic), you should still consider other important aspects like accessibility, financial strength, customer support, their track record for payouts, and other terms and conditions. Choose a policy and insurance provider that will give you the best mix of all these features.
- Accessibility and location – One big advantage that larger insurance companies have over others is the scale of their operations. Put simply, your location will be a factor when it comes to your life insurance options.
Currently, these 3 states feature some of the most affordable life insurance rates simply because they were assessed with the highest life expectancies:
- Hawaii – Average life expectancy of 81.15 years. Sample policy for a 40-year old female (non-smoker) for a 10-year, $500,000 term coverage is $15/mo
- Minnesota – Average life expectancy of 80.9 years. Sample policy for a 50-year old male (non-smoker) for a 10-year, $500,000 term coverage is $40/mo
- California – Average life expectancy of 80.82 years. Sample policy for a 20-year old female (non-smoker) for a 10-year, $500,000 term coverage is $10/mo
- Financial strength and stability – An insurance company’s track record plays a huge role in assessing if they are credible and more than able to pay their policyholder’s beneficiaries. To help consumers in making decisions, three popular rating companies rank insurers based on several metrics:
- A.M Best – U.S based credit rating agency that measures a company’s financial strength, mainly to check an insurer’s ability to meet its financial obligations
- J.D. Power – This company analyzes customer satisfaction, buyer behavior, and then ranks a product’s quality from a scale of 5 (best) to 2 (everything else).
- Better Business Bureau (BBB) – For measuring a company’s customer service based on consumer feedback
- Decide on your most ideal coverage length and amount – Term life is touted by many as the most flexible of all insurance options. Why? Because it allows policyholders to pick a suitable term duration (10, 20, 30) years and coverage amount that will work best for their needs.
For example, a young family may choose a 20-year, $500k term coverage that will last until their child finishes school. As they reach the end of the term, they can opt to extend or get a new policy that better suits their changing needs. Alternately, they can choose a shorter or longer term depending on how long they think they will need income-replacement in the event of death.
- Get on a healthy lifestyle – Your overall health is an important determinant of how much you’ll pay for life insurance. Put simply, the healthier you are, the lower the amount you’ll need to pay for coverage. And whether you’re getting life insurance or not, it’s always a good idea to get enough exercise, get yourself checked regularly, avoid smoking, and eat healthier foods.
Here are some additional tips that will help you save more on life insurance:
|Start early||Get multiple life insurance quotes|
|Lessen high-risk activities||Choose a shorter term|
|Be a defensive driver||Pay annual instead of monthly or quarterly|
|Quit smoking||Talk to a Certified Financial Planner|
|Buy only the coverage you need|
Getting affordable and adequate life insurance protection doesn’t need to be hard. With due diligence and using the tips provided in this article, you’ll have a better chance of acquiring the cheapest and best value life insurance for your needs.
If you are looking for more information about possible life insurance options, reach out to us directly to receive a free quote.
Bear in mind that some of the links in this post are affiliate links and if you go through them to make a purchase I will earn a commission. Keep in mind that I link these companies and their products because of their quality and not because of the commission I receive from your purchases. The decision is yours, and whether or not you decide to buy something is completely up to you.