Life insurance – tips to cut the cost

If you want to get the best life insurance policy at the best price, simply follow our top 10 money-saving tips.

1. Compare premiums

Prices vary from insurer to insurer so make sure you shop around for different quotes. MoneySuperMarket’s online comparison service is free and independent – and it’s easy to use, saving you time and money.

2. Pick a suitable policy

The two main types of life insurance are ‘term’ insurance and ‘whole of life’ assurance.

Term insurance is typically cheaper than whole of life cover as it pays out only if you die within the policy term. Whole of life cover lasts until you die, whenever that might be, and so is guaranteed to pay out.

You might also be able to save money if you are happy with decreasing term insurance, where the pay-out gets gradually smaller the longer you live. 

You can also arrange for the policy to pay a monthly income rather than a lump sum – this can work out cheaper than other forms of cover.

It’s important to bear in mind that a joint life policy pays out only on the first death

3. Set the right term

The longer the term of the policy, the more likely you are to die and trigger a claim. The premium will consequently be higher. You should therefore make sure you set a term to fit your needs. 

If your life insurance is linked to your mortgage, for example, a term of 20 or 25 years might be long enough. If you want the policy to run only while your children are at home, you might be able to settle for a shorter term. 

4. Get the right sum insured

The bigger the potential policy pay-out, the bigger the premium. So don’t buy too much cover. There’s no point in paying for a sum insured of £500,000 if your family could manage comfortably with £300,000.

You should also check if your employer provides what is known as death-in-service benefit as part of your remuneration package. This could pay out four times your salary on your death, so having it would reduce (but not remove) the need for separate life cover of your own.

5. Buy life insurance when you’re young

The cost of life insurance rises with age, because statistically you are closer to dying the older you get. This means you can save money by arranging cover in your 20s or 30s, rather than in your 40s and 50s.  

6. Stop smoking

Smokers pay more for life insurance than non smokers, so kicking the habit can be good for your wealth as well as your health. 

Remember, though, that you must have given up all nicotine products for at least 12 months to qualify as a non smoker – and that includes nicotine replacements and e-cigarettes.

7. Consider joint life cover

Couples often take out a joint life policy as the premiums are usually a bit lower than two single life plans. However, it’s important to bear in mind that a joint life policy pays out only on the first death. When the survivor dies, the family cannot lodge another claim unless he or she has bought another life policy – which would be relatively expensive to do because of their greater age.

8. Beware costly extras

Companies often try to sell additional benefits alongside life insurance. Critical illness is a common add on and pays out if you are diagnosed with one of a list of serious conditions, such as a heart attack. Then there’s terminal illness cover in case you are declared terminally ill, or waiver of premium, which covers the cost of life insurance if you are unable to work due to illness or injury. 

They can all be valuable, but they can all put up the price of cover. So make sure you only buy what you need.

9. Sidestep tax

Life insurance payouts are free from income and capital gains tax, but your family could be liable for inheritance tax (IHT) at 40% on the proceeds of a life insurance policy. The simple way to sidestep IHT is to write the policy ‘in trust’. It’s a straightforward process and your insurer or adviser should be able to help. 

10. Do you really need life insurance?

If you are employed, you might be eligible for ‘death in service’ benefit, which typically pays out a lump sum of about four times your annual salary if you die while still working for the firm. 

Death in service benefit can reduce or even eliminate the need for life insurance, so it’s worth checking what’s available. You also don’t need to worry too much about life insurance if you are single with no dependents.

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