Ten ways to save money on life insurance

Just as there are different life insurance plans to meet your needs, there are different ways to save money on life insurance.

The most important is to shop around. There are hundreds of insurance companies, offering a wide variety of plans and prices. You could save big bucks just by doing some comparison shopping.

Here are 10 more ways you can save money on your next life insurance purchase.

1. Consider term insurance

Some financial planners advocate life insurance policies with cash value components because they force you to save money. Others recommend you buy term insurance for the cheaper premium and then invest the difference.

Term life insurance gives you the most coverage for your buck.

Cash value in life insurance should not be considered a traditional investment, because any withdrawals or loans not repaid will reduce your death benefit. Also, if you take a partial withdrawal from the cash value of your policy in an amount greater than your total premiums, the withdrawal in excess of your total premiums is considered income to you and, therefore, taxable. In addition, every year you own the policy, more of your premium money goes to pay for the cost of insuring you, and less of it goes toward the cash value.

Furthermore, the difference in premiums between term vs. perm life insurance is not just a matter of a few dollars per year. According to the Society of Actuaries, premiums for whole life can be 5 to 10 times higher than the same amount of level term life, depending on the kind of level term being compared. For example, if you're comparing the premiums of 30-year level term it will be a smaller multiple, while premiums on a 10-year term policy could be a larger multiple.

2. Seek out low-load policies

"No-load" or "low-load" life insurance policies have fewer expenses built into them, such as agent commissions and fees, than other life insurance policies. This can mean lower premiums. For variable life insurance, these lower expenses mean a higher percentage of your premium goes to work for you right away, allowing you to build your cash value faster.

No-load policies can be purchased through financial advisors who charge flat fees rather than collecting commissions from insurance companies. Some companies also sell "low-load" policies directly to customers, such as Ameritus and TIAA.

3. Don't buy a guaranteed issue policy if you are healthy or even with some negative medical history

"Guaranteed issue" life insurance policies require no medical exam and are sold to anyone who applies and pays the premium. Since there is no underwriting done, guaranteed issue policies are riskier for the insurer and are, therefore, more expensive than fully underwritten insurance policies. While these policies can be a great way for people who have medical problems to obtain life insurance, if you're healthy — or even if you have some medical problems — you'll get better rates by opting for an underwritten policy, for which you take a medical exam.

The high premiums, combined with a low face amount for the death benefit, can make guaranteed issue life insurance a less desirable option. For some of these policies, you could end up paying more in premiums after only a few years than your beneficiaries might ever receive from the death benefit.

4. Shop online first

While not all online life insurance quoting services will give you the best quote available for term life insurance, they can still be a useful source of information about prices. Just remember, the more personal information you give, the more accurate your online quote will be, but "the lowest quote" should still only be used as a baseline for shopping around.

5. Improve your health

Having health problems can make it hard for you to buy life insurance. High blood pressure, diabetes and heart disease are among the conditions that can make life insurance companies pump up your rate.

Then there are rates for smokers. Smokers may pay significantly greater premiums than non-smokers, and you can't quit the day before you apply. For many companies, the minimum "nicotine-free" period is two years for a non-smoker rate. Some companies will consider you a smoker for as many as five years after your last cigarette.

If you smoke marijuana, pipes or cigars, but not cigarettes, you still must admit to being a smoker on the policy application, although insurers don't generally differentiate between different types of smoke inhalation. (Marijuana users must also disclose drug use.)

Insurance companies use urine tests to check for the presence of nicotine. If you chew tobacco, you might end up paying smoker rates for your life insurance policy.

If you're healthy but somewhat overweight, you will likely be quoted higher rates too.

If you have a pre-existing medical condition that could lead to higher rates, you'll make your underwriters happier and probably get yourself lower life insurance premiums by showing your insurer a history of improving your health, taking your medications regularly and acting responsibly about your health.

6. Don't buy more, or less, than you need

Many experts say the best way to determine the amount of life insurance you should purchase is a needs analysis. It's a basic formula: short-term needs + long-term needs - resources = how much life insurance you need. Michael Snowdon of the College for Financial Planning in Denver says this method is "probably the most accurate approach in what is an inaccurate and imprecise science." Insure.com's Life Insurance Needs Estimator Tool can help.

Experts advise that you do an analysis at least once every three years, or whenever you have a major life change. For example, if you have a new baby, you have to recalculate college education needs and child-care costs. If you own a home, a mortgage is likely your biggest financial burden. Because your mortgage balance decreases with each payment, it's important to include those revised figures in your calculations.

7. If you need more life insurance, consider a rider as opposed to a new policy

Just because your needs change doesn't mean you should run out and buy a new life insurance policy. In many cases, a rider adding extra coverage to an in-force whole life insurance policy can let you expand your coverage without sacrificing your built-up cash value. At the same time, be sure to shop around. If you're still in good health, you might be able to get a better deal by buying a supplemental term life policy to supplement your original one.

8. Buy as soon as the need exists

An advantage to buying life insurance as soon as possible is that your premiums are lower. As you age, life insurance gets more expensive. Many term policies give you the option to renew your coverage at the end of the term without undergoing another medical exam. You also can lock in premiums by asking for a "level premium" policy, which means for a specific time period, say 20 years, your premium rate stays the same. After that term expires, your rates will increase. But if you don't have any dependents, your money will be better spent elsewhere.

9. Check your credit report before you apply

Just as you should check your credit rating before applying for a loan, you should have a look at your credit report before purchasing a life insurance policy.

If there are problems with your credit, you could be denied coverage or be placed in a higher risk class because insurance companies will be concerned you would let the policy lapse due to non-payment of premiums. If this happens in the first couple of years that a life insurance policy is in force, the insurer stands to lose money because of the high up-front commissions they pay to agents.

The total first-year compensation payout on a life insurance policy may be as high as 100 percent, considering agent commissions, supervisory overrides and production bonuses.

10. Pay your insurance bill annually

Once you've found the best insurance policy for your needs, find out if you can save money by the way you're billed. Some insurers charge you less if you pay annually and more if you pay monthly.

In general, the fewer payments you make over the course of the year (known as fractional premiums), the less you'll pay overall. Also, some insurers charge less if they can deduct the premiums directly from your checking account.