Saving Money on Life Insurance

We buy life insurance to provide for our loved ones in the event of our death, so it’s obviously important not to scrimp on the cover. On the other hand, there’s no point in paying over the odds, so you have to make sure you get the best policy at the best price.

Save money on your life insurance

Consider term assurance rather than whole of life

The type of cover you choose can have a big impact on the cost. Whole of life insurance is generally more expensive than term assurance because it will inevitably pay out. With a term assurance plan, your family does not get the benefit unless you die within the term. In other words, there is less likelihood of a claim, so the premiums tend to be lower.

Different types of term assurance are also cheaper than others. If you buy a decreasing term assurance policy, for example, the size of the payout falls over the policy term in line with a dwindling debt, such as a repayment mortgage. Decreasing term assurance is therefore not as expensive as level term cover, where the payout remains the same. However, you will pay more for increasing term assurance because the sum insured will rise over the term, often to keep pace with inflation.

Cut the term and the level of cover

You can decide on the size of the payout and the length of the term when you arrange life insurance – and both can affect the cost. Generally speaking, the bigger the payout and the longer the term, the more expensive the policy. It is therefore important to make sure you do not buy too much cover for too long. For example, if you want life insurance to cover a £250,000 mortgage over 20 years, don’t buy a policy with a sum assured of £500,000 and a 25-year term.

Also find out if you already have some cover in place, perhaps death in service benefit from your employer.

Guaranteed premiums Vs Reviewable

Insurers usually give you the choice between guaranteed or reviewable premiums – and it is important to understand the difference. If your premiums are guaranteed, they will stay the same throughout the policy term. If you opt for reviewable premiums, you will pay less at the outset, but the cost of cover will almost certainly rise when the company carries out regular premium reviews. The analysis of historical prices suggests that guaranteed cover tends to work out cheaper in the long run, although it is more expensive at the start.

Take a joint life insurance policy

It is quite common for a husband and wife to take out one joint life insurance policy, which pays out on the first death. A single joint life insurance policy is often cheaper than two single life insurance policies, but you have to ask yourself whether it would be better to pay a little bit extra for greater cover.

If you take out only one policy, the payout is the same whoever dies first - and that can cause problems if one of you earns a lot more than the other. A joint life insurance policy also lapses after the first death, leaving the survivor without any life insurance cover. If your spouse decides to buy his or her own single life policy after your death, it will inevitably be more expensive as he or she will be older and possibly in a poorer state of health.

Add critical illness cover

Most insurers offer critical illness cover alongside life insurance. Critical illness cover pays out a lump sum if you are diagnosed with one of a list of serious conditions such as kidney failure or cancer. The premiums can be expensive because of the high incidence of claims. But you can often save money if you buy critical illness cover as an add-on to life insurance rather than a standalone policy.

Written in trust

Don’t forget to write your life policy in trust. A life insurance payout is not subject to income or capital gains tax. However, the money would normally go to your estate after your death – and if your estate is worth more than £325,000, your family would have to pay inheritance tax at 40%. If you write your policy in trust, any payout goes straight to the trust’s beneficiaries and so neatly sidesteps the tax threat. It’s also a simple process and your insurer should be able to take you through the paperwork at no extra charge.

Live healthily

Insurers assess a number of factors when they set premiums, including your gender, occupation, postcode, age, health and lifestyle. There’s not much you can do about your gender – and most people aren’t willing to switch jobs or move house to obtain cheap life insurance premiums.

Buy when you are young

The cheapest life insurance policies are available to you when you are young, when you are in a better state of health and have a longer life expectancy. You can also make changes to your lifestyle.

Quit the fags

The cigarette packets warn that smoking kills – and life insurers push up premiums for smokers because they are statistically more likely to claim. In some cases smokers can pay nearly double the premium for a non smoker, so it pays to kick the habit. Bear in mind that insurers do not judge you to be a non smoker until have abstained from all tobacco products for at least 12 months. So don’t try and sneak in a Christmas cigar!

Lose weight

Try and get your self in shape, too. Lose a few pounds if you are overweight, and cut down on alcohol. You will not only feel better, but it could also save you money. Just don’t take up a dangerous sport as part of your fitness campaign. If your hobby is rock climbing or white water rafting, then you are a bigger risk to a life insurer and will therefore not benefit from the cheapest life insurance policies available.

Don’t lie

A word of warning; It might be tempting to lie to your insurer about your state of health or your smoking habit if you are on the look out for cheap life insurance, but you should resist the temptation. If you fail to disclose all relevant information, you could invalidate your policy and the insurer could refuse to pay out on your death, potentially exposing your family to financial hardship.  

Shop around and compare life insurance quotes online

Of course, one of the easiest ways to get cheap life insurance is to compare premiums from different companies. MoneySupermarket’s online comparison service enables you to search for quotes from more than 100 leading insurers quickly and easily, saving you time and money.