When it comes to insurance, most of us expect prices to increase over time. And we assume this for a good reason – they often do. We’ve all been in the situation where our auto, cable or internet “promotional price” is up, and we’re stuck with a bill that’s $20+ more per month. No matter our negotiating prowess, many of us end up with at least an incrementally higher payment each month.
Fortunately, we have good news for you. Life insurance doesn’t have to work that way. You, intrepid life insurance shopper, can easily find a policy with premiums that stay the same for the duration of the term length. Meet: guaranteed level premiums.
What you should know about guaranteed level premium policies
Guaranteed level premiums = long-term affordability
With a guaranteed level premium policy, your rate is guaranteed to remain the same for the duration of the term length you chose when you purchased your policy — 10, 15, 20 or even 30 years. This is beneficial for you because, while you’re healthy, you can lock in a very affordable rate for the next 30 years. For example, a healthy 35-year-old woman can buy a 30-year, $500,000 policy starting at about $32 per month. Over the next 30 years, assuming she pays the premiums on time, she’ll have all that peace of mind for $32 per month.
When you buy a term life insurance policy, you go through an underwriting process where the insurer looks at your age, health and personal and family history. This enables the insurer to determine how long they can cover you for, how much coverage you can buy and at what price point they can sell it to you for that duration of time.
Many medically underwritten term policies feature a level premium
Many insurers sell guaranteed level premium policies because it’s often a better value for most term life insurance shoppers. It’s the only type of policy we sell at Haven Life because we believe everyone should have high-quality coverage at an affordable price.
When shopping for a policy, it never hurts to make 100% sure that it’s a level premium, so you aren’t caught with unexpected expenses during the guaranteed term of your policy.
How annually renewable policies work
The opposite of guarantee level life insurance is an annually renewable policy. Like the name implies, the contract for an annually renewable term policy lasts one year and then will be reassessed once the year is up. In the first year or two of the policy, the premium may be less than a guaranteed level policy. But each year the price and rate of increase, making it more difficult to afford coverage with each passing year. After 5 years or so, it’s possible you would have paid more in premiums than you would have for a 10-year level term policy.
An annually renewable policy may be an option for someone who needs coverage only temporarily. For example, if you have a debt you’ll pay off in a year or two – since, remember, its pricing can be less than a guaranteed level policy for the first couple years. Or, if you’re a smoker who is determined to quit but can’t yet qualify for non-smoker term life rates, an annually renewable policy could provide temporary coverage while you meet the requirements for a guaranteed level, tobacco-free policy.
For most term life insurance buyers, however, coverage is needed for longer periods of time — until the kids are adults or the mortgage is paid off. For those seeking coverage for extended term lengths, an annually renewable policy may not be cost effective. That’s why many buyers seek guaranteed level premium policies.
How to get the best value on a life insurance policy
Buy only what you need
One of the best ways to help ensure long-term affordability of a term life insurance policy is to have the right amount of coverage – not too little where your family’s financial security may be at risk and not too much where you’re overpaying.
The right amount of life insurance coverage (commonly called the face amount) depends on a variety of factors, including your income, age, family structure, and debts. Fortunately, there’s no need to guess. An online life insurance calculator can take into consideration all of those factors to recommend a policy that’s just right for you, and, just right for your budget.
Select an appropriate term length
The term length of a guaranteed level premium life insurance policy has a significant impact on pricing. For example, a 10-year, $500,000 policy will cost less than a 20-year, $500,000 one. (Here’s a good, free tool for estimating your life insurance rate based on different term lengths.) While a longer term length can buy you more flexibility for what life sends your way, it can also leave you paying for unnecessary coverage.
The right term length typically lasts long enough to cover your significant financial responsibilities — say, until the mortgage is paid off or your children have graduated college. An online life insurance calculator can also take the guesswork out of choosing the right term length. In addition to recommending an appropriate policy amount, it will also take into consideration how long you need the policy for.
Choose a reputable insurer
While affordability, of course, is important, we’d argue that dependability is just as vital when you’re buying a life insurance policy. Life insurance is a long-term relationship – 10, 20, or even 30 years. As with any relationship, it’s important to know that the company that issues your policy will be there for you and potentially, pay out a claim. That’s where life insurance rating agencies come into the picture.
Life insurance companies receive ratings from independent agencies based on its assessment of the insurer’s financial strength and claims-paying ability. Four of the rating agencies most frequently referred to are A.M. Best, Fitch, Moody’s and Standard & Poor’s.
The higher an insurance company’s rating, the higher confidence the rating agency has that the insurer will be around to take care of your family, as promised. Based on their analyses of customer complaints, available cash flow, and acceptable risk, the agencies provide an independent, objective opinion. The rating scales work like grades in school, so an ‘A’ is better than a ‘C.’
For example, Massachusetts Mutual Life Insurance Company (MassMutual), which issues our Haven Term policy, is A++ rated by A.M. Best.* (Superior; Top category of 15), A.M. Best’s highest rating.
To see where other companies rate with individual agencies, you can go to each rating agency’s website. Additionally, most insurance companies proudly boast their ratings on their websites.
Securing your peace of mind
Hopefully, by now you’ve seen that shopping for life insurance isn’t as complicated as you thought. In fact, with Haven Life, it’s actually simple. For most people, a guaranteed level term policy may be the better option because of its dependability and affordability. And, fortunately, thanks to modern technology, once you’re ready to buy, you can conveniently apply for an affordable, high-quality term life insurance policy online – anytime, anywhere.
Peace of mind is even more gratifying when you can achieve it in your pajamas.
*Rating is as of January 15, 2018, and is subject to change. MassMutual has also received different ratings from other rating agencies.