Cutting the cost of life insurance

Life insurance – tips to cut the cost

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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 pays out only if you die within the policy’s duration.

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. 

What factors affect life insurance costs

3. Set the right term

Think realistically about how long you want the policy to run. You might consider linking your policy to your mortgage, for example a term of 20 or 25 years.

Alternatively, you might want your policy to only run for the time your children are living at home, which might mean you opt 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.

Our life insurance calculator page will help you estimate the right amount of cover you need.

5. Buy life insurance when you’re young

The cost of life insurance rises with age. This means you can save money by arranging cover in your 20s or 30s, rather than in your 40s and 50s. 

This is because insurers consider you less likely to make a claim, the younger you are.

The chart below shows the average monthly premium for life insurance depending on the age of the policyholder. But keep in mind each insurer will differ in how much emphasis they give to factors such as your occupation, medical history and lifestyle, so your personal quote is likely to be different.

Average monthly life insurance premium

Whether you’re buying your first home, getting married or thinking about having children, taking out life insurance as a young adult can be a cost-effective way to plan for your financial future. 

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

Read: Life insurance for smokers

7. Consider joint life cover

Couples often take out joint cover, as the premiums are usually a bit lower than two single life plans. But remember – a joint life policy pays out only on the first death.

Another claim cannot be lodged upon the second death, unless he or she has bought another life policy – which would be relatively expensive to do because of their greater age.

Types of life insurance infographic

8. Beware costly extras

Companies often try to sell additional benefits alongside life insurance.

Critical illness and terminal illness cover are examples of these – they can both be beneficial add-ons, providing your circumstances deem them necessary.

There’s also ‘waiver of premium’, which covers the cost of life insurance if you are unable to work due to illness or injury.

Read: Understanding critical illness cover

9. Sidestep tax

Life insurance pay outs 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. Our guide on life insurance and tax explains this further.

10. Do you really need life insurance?

Not everybody needs life insurance, if you have no dependants or you feel like your dependants would be financially stable should you pass away, taking out a life insurance policy could just be a waste of money.

Similarly, you might be eligible for ‘death in service’ benefit, which typically pays out a lump sum of about four times your annual salary should you pass away during your employment with them.

Death in service benefit can reduce or even eliminate the need for life insurance, so it’s worth checking what’s available.

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