I recently read an article in USA Today on the subject of the best time to buy life insurance. Most of the advice was the standard, common-sense variety, so I thought I would expand on this topic and share some helpful tips for people searching for advice. Is there a “right” time or a “best” time to purchase life insurance? This question will be answered and some money-saving, not-so-standard advice will follow.
See the HELPFUL TIPS section below to find out when it actually saves you money to wait longer to buy life insurance.
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The article in USA Today focused mostly on the appropriate age to buy life insurance. While age can be important, you should consider other factors. For the majority of people, the best time to buy life insurance is when you realize your loved ones are dependent on your income. If you were to die, would that cause financial hardship to your family? If the answer is yes, the “when to buy” question has been answered. The sooner you secure life insurance, the better.
It doesn’t matter if you are 25 years-old or 65 years-old, if you could leave your loved ones in much better financial condition by purchasing life insurance, then it’s usually a smart financial move. This advice may seem overly simplistic, but it’s really about not delaying. I have experience with (and read about) people who delay buying life insurance, only to find out it’s too late. Either they were diagnosed with an uninsurable condition or they died prematurely. Those tragic situations can be avoided.
Waiting Until You Can Afford the Premiums
When I was a new agent (18 years ago), I was trained and encouraged to sell permanent life insurance to anyone and everyone. New agents were instructed to memorize a sales pitch called the “The Personal Security Builder”. I would meet with young families who simply needed life insurance protection, not an expensive cash-value Universal Life policy that would supposedly achieve all their investment and protection needs.
I walked away from many meetings without a sale because I couldn’t answer the “We can’t afford it” objection. Little did I know that I was doing these families a great disservice by only presenting one – very expensive – solution. Most of the people I met with (young parents) really needed a low-cost term policy to protect their loved ones.
Let’s look at an example: You might find out through an advisor or an online calculator that you need a $1,000,000 20-year term policy. Well, you might be just starting off a new position and have on overload of bills. You might say, “I can’t afford spending $90 per month” (lowest cost policy for a 42 year-old male at the Preferred rate). You could look at a lower-cost option. Why not purchase a 10-year convertible term policy for $750,000 at $35/month?
All or Nothing Mindset
It’s better to get something rather than nothing. By the way, almost all 10-year term policies are less expensive than 5-year term policies. So, it would make sense to protect your family and your insurability by securing a 10-year term. You could purchase another longer term policy down the road when you’re in better financial shape. Purchasing a convertible term policy ensures you could convert to a longer-term (or permanent) policy at the same underwriting class. Even if you experience major health setbacks, you would protect your insurability.
I’ll Wait Until I Quit Smoking or Lose Weight
The same principle applies here. Yes, smokers pay a much higher rate for life insurance. If you smoke and considered quitting, then buying life insurance can provide a huge incentive. Premiums are double or more for smokers. The exception would be the occasional pipe or cigar smoker. To qualify for non-smoker rates, you need to quit for at least one year.
Again, rather than waiting for the more affordable non-smoker rates, it could make sense to purchase a 10-year policy for a lower face amount. The policy could be replaced at the significantly lower rate when you qualify as a non-smoker.
Height/weight or what underwriters term “build” can significantly impact your rates. Build charts vary among carriers. Some carriers are much more lenient in this category than others. As a standard guideline, carriers want to see that you keep weight off as they know most dieters gain back the weight they lost. Let’s say you lost 30 lbs (going from 180 lbs. to 150 lbs) in less than one year. Life insurance companies will add back half the weight you lost, so they will consider your weight as 165 lbs. in the example above.
Get coverage at the higher rate when you can and apply for the lower rate (based on better underwriting class) when you reach your maintain your weight loss of at least one year.
Waiting can seem to make financial sense because you will qualify for lower rates, but this strategy often backfires. If you don’t lose
Baby on Board
One of the most common times to purchase life insurance is when you have a new born. Suddenly, you realize that you are totally responsible for the well-being of your baby. In fact, many life insurance companies target new parents with their marketing because they know it’s the ideal time to purchase life insurance.
When we learn that a couple is expecting, we often suggest the that they consider buying life insurance before their baby is born.
The timing of when to buy life insurance can make a significant difference in rates.
Most carriers base rates on your nearest birthday. Other carriers base their rates on your actual age. This is an important factor to consider. If you’re in your 20s or 30s, the rate increase from one year to the next is marginal. However, if you’re in your 40s, 50s, 60s or older, the rates increase at a higher percentage each year.
If you are nearing your birthday or 6 months from your next birthday, then it can make sense to apply for coverage to lock in lower rates. Carriers allow you to backdate to “save age”, so make sure you ask about this option. It might need to pay extra premium at the outset, but backdating can save you a lot of premium dollars in the long run.
Sometimes, waiting longer can actually lower rates.
Most people don’t realize that underwriting guidelines become less stringent as you get older. The build charts, limits for cholesterol and blood pressure, etc. are more favorable as you get older. So, if you are 59 years-old (as an example) and your blood pressure is slightly high, you could wait until you turn 60 (nearest birthday or actual age) to qualify for a better underwriting class. The difference between Standard Plus and Preferred could mean a savings of hundreds of dollars per year.
For instance, let’s look at Principal Life’s underwriting guidelines for the Preferred Non-tobacco classification. These are just a couple of the underwriting factors.
- Blood Pressure Cannot exceed: 140/85 at ages 20-44 – 140/90 at ages 45-64 – 145/90 at ages 65-85
- Cholesterol Cannot exceed: Total Cholesterol 270, Cholesterol/HDL of 5.5 at ages 20-64 – Total Cholesterol 280, Cholesterol/HDL of 6.0 at age 65-85
A 64 year-old with total cholesterol of 278 might be better off waiting month or two to qualify for the Preferred classification. This could save several hundred or thousand dollars over the lifetime of the policy.
The Best Time to Buy Life Insurance – Conclusion
As mentioned at the outset, in most situations, the right time to buy life insurance is now. It’s when you realize the need to protect your loved ones. We have seen too many people wait until they are in better financial shape, only to realize they waited too long. It bears repeating: Better to get something, than nothing.
A knowledgeable, experienced advisor will ask you the right questions and help you determine whether you could benefit by backdating or waiting to qualify for better rates.
Please use our instant quote engine, but feel free to call us for a free consultation. We will be glad to advise you and prepare customized quotes.