Cut life insurance costs down to size

Published:
23 February 2012
Topic:
News,Insurance,Life

It's grim thinking about life insurance. After all, someone needs to die for the policy to pay out. But it's important to bite the bullet and put cover in place, especially if you have dependants. And it clearly makes sense to find the best policy at the best price.

You can shop around for a quote from MoneySupermarket's extensive panel of life insurers, or you can call our experts on 0800 142 2023 for free impartial advice with no hard sell.

What sort of policy do I need?

The simplest form of life cover is 'term' insurance. You choose how long you want cover for - the term - and you pay a premium for that length of time. If you die during the term, the policy pays out your chosen 'sum insured' to your nominated beneficiaries. If you stop paying the premium, the policy terminates, and if you live to the end of the term, that's it - you don't get anything back.

Term cover is cheaper than the alternative - whole of life insurance, which pays out when you eventually die - because not everybody makes a claim. The cost of term cover is determined by the size of the sum insured and the length of the term along with your age, health, whether you smoke and your gender - women generally pay less because they live longer and enjoy better health than men.

You can buy cover for yourself or get a 'joint life' policy for you and your spouse or partner, in which case both your details will be taken into account. This option will work out cheaper than buying two separate policies. But bear in mind that the joint policy will pay out if one of you dies, leaving the survivor with no insurance. If they needed cover at that stage, their increased age would affect the cost.

Mortgage cover

Many people take out term cover to match their mortgage so that the debt will be cleared if they die. Here, the term and sum insured align with the loan repayment details. You can buy 'decreasing' term insurance if you are paying off the loan gradually. Here the cover provided falls in line with the outstanding debt, meaning the overall cost is lower.

Term cover to clear a debt can be vital, but it is also important to think about providing funds that your family can use if you are no longer around. This can compensate for the loss of your earnings if you are a breadwinner, or it can pay for childcare, cleaning and generally looking after the home and family. Don't assume you only need insurance for the person at work.

Someone in employment may have life insurance as part of their benefits package - many firms will pay, say, four times an individual's annual salary if they die. Take this into account when arranging cover so you don't end up paying for more insurance than you need.

 

Saving money

There are some things that affect your premium you can do nothing about, such as your age and gender. There are others you can control, such as:

Don't delay

The younger you are, the lower your premiums are likely to be!

Smoking

This is a major factor where premiums are concerned. According to the MoneySupermarket quote comparison service, the cheapest quote for a 40-year old male non-smoker wanting £200,000 of term cover over 20 years would be £15.83. If he smoked he would pay £30.55 - almost double.

Insurers tend to ask if you have smoked or used nicotine products in the past 12 months, so the sooner you pack in the better. A good time to start might be Wednesday 14 March which is this year's national No Smoking Day.

If you took out a policy when you smoked and have since kicked the habit, it may be worth checking to see if you could stop your existing policy and get a new one for a lower premium. It takes a few moments to get a quote via MoneySupermarket. According to Sainsbury's Finance, 3.3 million ex-smokers are collectively paying over £300 million a year more than they need to for life cover.

Family income benefit

With this type of life insurance, the beneficiaries do not receive a lump sum. Instead, on the death of the policyholder, they start to receive an agreed monthly payment, which is paid until the end of the original policy term. So, for example, if the policyholder died five years into a 20-year policy, the payments would be made for 15 years.

As the potential payout by the insurer is less than with a normal term policy, the premiums for a family income benefit are lower.

Lifestyle

Insurers often ask people to undergo a medical before setting a premium and issuing a policy. They want an accurate picture of your health and fitness, so if you can lose a bit of weight you might also trim your outlay.

If you've transformed your health through a dieting and fitness regime since taking out the policy, it might be worth telling your insurer and seeing if there are savings to be had.

Costs rise for those who regularly undertake hazardous activities, such as hang gliding or rock climbing, and for those in hazardous occupations, such as miners, steeplejacks, pilots and offshore platform workers. If you have moved to a less hazardous job since taking out life insurance, use our comparison service to find out if you can save.

Honesty = best policy

Always tell the truth on an application form, whether it is about being a smoker or having a history of illness in your family. If a claim is made, the insurance company is entitled to check the accuracy of your application, and it might refuse to pay out if it discovers dishonesty.

Monitor your policy

As time passes and circumstances change, your insurance needs may differ. Keep an eye on the main 'risk' factors - the term of the policy and the sum insured - to see if adjustments are required.

Writing your policy 'in trust'

If the worst happens and a claim is made, it will be important for the family to receive the pay-out as soon as possible. Writing the policy 'in trust' will help because it will then go to the beneficiaries without first going into your estate. It can take a lengthy period for an estate's affairs to be resolved, and there may be inheritance tax implications. Our experts will guide you through the process, which is straightforward and cost-free.

Critical illness cover

You can supplement your life policy with critical illness insurance, which pays out on diagnosis of illness such as cancer, heart attack, stroke or organ failure. Some policies also pay out if you are injured and become permanently disabled and unable to work. This cover can be expensive, increasing the cost of your term policy by 100 per cent or more. But it can be valuable. According to the British Heart Foundation, around 50,000 people a year aged under 65 suffer a heart attack and are unable to return to work. Another grim statistic, this time from Cancer Research UK, is that 125 women a day are diagnosed with breast cancer.

Guaranteed/reviewable premiums

You may be given the choice of guaranteed or reviewable premiums. Guaranteed premiums stay the same throughout the term of the policy, whereas reviewable ones can change. Any alterations will not be down to changes in your own circumstances but broader market conditions, such as new tax rates or developments in overall life expectancy and illness statistics across the population. Generally, reviewable premiums start lower than guaranteed ones but end up higher - that can make them useful for those on a tight budget.

Premium waver

This is an optional extra for your policy. If you pay for premium waver, your premiums will be paid by the insurance company if you are forced off work by illness or injury.

Shop around for the best deal

Remember to use the MoneySupermarket comparison service or talk to our experts on 0800 142 2023.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct. Contact MoneySupermarket.com at Moneysupermarket House, St David's Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2011

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Kevin Pratt

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Content Editor, Insure and Home Services

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