Taking Advantage of Term Life Insurance Rate Bands
If you are shopping for low cost Term life insurance, here is a valuable tip that will enable you to save some money on your premiums. Probably 99% of all consumers never knew about this important aspect of buying life insurance.
What we are going to go over is the subject of “Rate Bands” and how they will affect your premiums. I already know what you are thinking, what in the world is a rate band? Now you are going to find out what this unusual term is all about and how it can save you money and help you secure the lowest Term life insurance rates.
You can actually save money on your life insurance rates by purchasing a higher Face Amount.
Here is how this works, all the life insurance companies for many years have used a concept of rate bands to calculate premium rates for Term life insurance. These rate bands are broken down into batches of 3 to 5 different band categories.
Each of these bands contain a rate per thousand dollars in life insurance coverage. The philosophy is the more you buy the lower the rate per thousand of coverage. If you are looking for Term life insurance quotes, this information will help you reduce your premiums.
Let’s use this as an example; If you are shopping for affordable life insurance and you are interested in purchasing $100,000 for example, the rate band will be at its highest point. This will normally hold true for the face amount of $249,000 in coverage. The bottom line here is if you are looking for a smaller face amount between $100,000 to $249,000 the life insurance per thousand will be the most expensive.
If you purchase your Term life insurance by a higher face amount the price per thousand goes down.
This next rate tier will normally be $250,000 to $999,000 which will save you money per thousand dollars of coverage.
A good example at this point is if you are planning on purchasing a $250,000 face amount you will be paying less money per thousand which will naturally mean you will be purchasing more life insurance for less money. If you are considering the purchase of a $200,000 policy it would normally be more cost effective to apply for $250,000 instead. This way you will be able to take advantage of the rate band effect and put it to work for you.
If you decide to purchase a $1,000,000 face amount or higher the rates will go down again.
In essence you will be applying the technique of buying in bulk. Here is a good example of the breakdown.
Joe Brown who is 30 years old wants to purchase a 20-year Term policy and wants to know his options in Face Amounts and premiums. Joe asks his agent to give him a Term life insurance quote for a $200,000 Face Amount with an A+ rated company named Banner Life. Joe’s premium would be:
$191.98 for a $200,000 Face Amount
If Joe will consider a $250,000 Face Amount his premium will be:
$193.99 for a $250,000 Face Amount
This breaks down to $2.01 for an additional $50,000 in coverage.
A Face Amount of $400,000 would cost $274.38 and a jump to $500,000 would cost $318.99 which would breakdown to an extra $100,000 of coverage for only $44.61.
If Joe was interested in a $900,000 20-year Term policy from Banner Life the premium would be $526.18. A Face Amount increase to $1,000,000 would be $563.99 which would represent an additional $100,000 in coverage for $37.81 per year.
If we take a look at the final breakdown of Joe’s premiums we will see a rate of $96 cents per thousand dollars of coverage with Joe’s first quote of a $200,000 face amount. His last quote of a $1,000,000 policy would break down to a rate of $.37 per thousand. This is close to 1/3 the cost between these two Face Amounts.
To summarize the premium mathematics, Joe went from a rate of $.96 per thousand of life insurance coverage to $.37 per thousand by taking advantage of the rate band effects.
Taking advantage of the life insurance Rate Bands can make a considerable difference in premiums dollars and allow you to buy more Term life insurance for less money. We always take this into consideration when we are working with our perspective life insurance clients. This is one of the ways an experienced life insurance professional can help you secure the best term life insurance for the lowest premium possible.
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