Customizing Your Term Life Insurance Can Save Hundreds Or Even Thousands Of Dollars


Want to know the secret to saving hundreds, maybe even thousands of dollars on life insurance?

According to a recent life insurance survey, a majority of consumers who own life insurance indicated that their need for this insurance would change and decrease as they moved into the future. This is not really surprising! You probably will no longer need as much protection in 10 or 20 years as you need today.

Also, life insurance needs come in all shapes and sizes. Trying to purchase one policy to cover every need could mean that you’ll end up paying more for this protection than necessary.

Here’s the secret: Customizing your term life insurance gets you exactly the amount of protection you need for the length of time you need it, and saves you from paying for coverage you don’t need.

The online life insurance agents will not tell you this secret. But I say, why pay for more than you need?

Before you customize your life insurance, know your needs.

I am assuming you have already determined your current life insurance needs. (If you haven’t, check out my previous post “7 Tips for Using Online Life Insurance Calculators” for help in figuring out how much life insurance coverage is right for you.)

I am also assuming you have already decided that term Life insurance is the right product for you. (Check out my previous post “Term Insurance Is Cheaper than You Think” for the value of term Life insurance.)

Now you are ready to customize your term life insurance policies. This is where the fun begins, and where you can start to save money.

Here’s the typical approach.

Here’s how most people approach buying life insurance: If your current life insurance need is $1,000,000, and you have a 30-year mortgage loan and a small child, your insurance agent will most likely recommend a 30-year term life insurance policy with $1,000,000 of coverage.

I agree. This is what you need for today. But how about your needs after 10 years? Or 20 years? Typically the amount of coverage you need decreases over time. For example, your kid(s) will graduate from college so you don’t need coverage to pay for the cost of college if something should happen to you. You will have paid down or paid off your mortgage loan so you don’t need as much coverage for that expense either. And, at the same time, you will probably have accumulated more retirement savings and wealth, also changing your need for term life insurance.Autumn and Dash

Let’s assume that the insurance need in this example decreases from $1,000,000 to $750,000 after 10 years, and decreases to $350,000 after 20 years.

Since the price for a term Life Insurance policy goes up as the term period gets longer, the cost for a 30-year term life insurance policy is going to be more than the cost for a 10-year term life insurance policy.

Here’s how to customize your term life insurance coverage.

Rather than buying one policy with $1,000,000 protection for 30 years, you can customize your insurance needs by buying three smaller term life insurance policies with different amounts of protection and term periods: One 30-year term policy for $350,000; one 20-year term policy for $400,000; and one 10-year term policy for $250,000.

Term Life Insurance Protection Amount

ProductsYears 1 - 10Years 11 - 20Years 21 - 30
Total Protection$1,000,000$750,000$350,000
30-Year Term $350,000$350,000$350,000
20-Year Term $400,000$400,000 -
10-Year Term $250,000 - -

Overall, the combined coverage of these three smaller policies will create a customized term life insurance safety net to fit your particular life insurance needs. You will have total protection of $1,000,000 for the first 10 years, $750,000 for years 11-20, and $350,000 for years 21-30.

Here’s how customizing your coverage can save you money.

By customizing your term Life Insurance policies, you would save 43% ($15,260) 1 of the total cost for the life of the policies. The annual savings breaks down to 27% for the first 10 years, 37% for years 11-20 and 63% for years 21-30.

30-Year Term Life Insurance Premiums

ProductsProtection AmountYears 1 - 10Years 11 - 20Years 21 - 30
Total Protection$1,000,000$1,190$1,190$1,190
30-Year Term $1,000,000$1,190$1,190$1,190

Customized Term Life Insurance Premiums

ProductsProtection AmountYears 1 - 10Years 11 - 20Years 21 - 30
Total Protection$1,000,000$864$744$436
30-Year Term $350,000$436$436$436
20-Year Term $400,000$308$308 -
10-Year Term $250,000$120 - -

Total Annual Savings

 Years 1 - 10Years 11 - 20Years 21 - 30
Total Annual Savings$326 (27%)$446 (37%)$754 (63%)

And, if you invest the money you save each year, the amount of your investment will grow to $30,976, assuming 5% annualized return, by the end of the 30 years.

Other considerations

One of the reasons agents typically recommend one large policy is because most companies offer large policy discounts. That means you will get a better rate if you buy a bigger amount of protection. However, you will be paying that rate over a longer period of time so you would actually end up paying more in total premiums as I’ve shown in my example above.

Now, a few companies, like Transamerica, also offer the large policy discount when you buy a couple of smaller policies at the same time. They will look at the total amount of the protection and offer you the same large policy discount. On top of that, you are only charged one annual policy fee (you can view it as a maintenance fee) even though you have a couple of smaller policies. This is quite a sweet deal.

It’s your choice.

When I bought my term life insurance policies, I first determined my overall term life insurance coverage needs and then broke those needs down into the true number of years I would need certain amounts of that coverage. In other words, I customized my life insurance needs. Then I shopped around with a few different companies to compare rates and any possible fees. I ended up choosing Transamerica because their products provided me with the most favorable health and lifestyle discounts, which translated into the best premium rates.

Depending on your personal circumstances, you may find a different company best meets your needs.

The point is to think through your life insurance coverage needs over the long term and then break that coverage down into smaller term life policies based on the actual time you would need different amounts of coverage. Then shop around for rates based on this customized approach to buying term life insurance. You might be surprised at how much you could save on the cost of life insurance now that you know the secret of customization.

1 Based on the scenario for a 40-year old Preferred Best Class with Transamerica Trendsetter Super 10-year, 20-year and 30-year term life insurance rates as of 8/28/2015. 

Thank you my friend Autumn Reeser and her boy, Dashiell, for the beautiful photos. Check out Paper tiger photo.

Disclaimer: I am currently a Transamerica’s employee. This post does not reflect the views of Transamerica and is solely based my own experience and opinions.

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  • Some insurance companies can “layer” that coverage in one single policy. That gets you to one policy fee instead of three and you can take advantage of the rate banding for the total coverage (presumably the large benefit discount referred to in the article).

    • Calvin

      Thanks for your comment Derek. The example that I shared in the post already reflects only one policy fee and takes advantage of the rate banding for the total coverage.

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