How to Get the Cheapest Life Insurance: Tricks of the Trade
Choosing the right way to buy life insurance can save you thousands of pounds. We explain how at the bottom of this guide, but first a few more issues…
what to buy
A range of insurance policies will pay some type of benefit if your health suffers or you are unable to work. You can read about the different types here.
Life insurance is the cover that pays a set amount in the event of your death. Unlike other health insurances, there are no criteria that must be met when an insurance company decides whether you can claim: you’re either dead or you’re not.
This means that the policies on offer are generally the same and that buyers can look for the cheapest insurance policy without having to compromise the standard of coverage. However, there are some important points to remember.
You can purchase three types of life insurance—level insurance, reduced term insurance, and term life insurance.
A term level guarantee is taken for a specific period of time – known as the term. The term is set according to the length of time the client wants to cover. They may base this on the period in which they expect their family to be financially dependent on them, or the term of the mortgage. The total amount paid by the Level Guarantee remains the same for the duration.
To reduce a term guarantee, the amount the insurance pays will decrease over time. This is so that they can be purchased in connection with a repayment mortgage as the amount that the individual wants to cover will gradually decrease in line with the debt. Because of this, reducing a term warranty is usually cheaper than a standard term warranty.
Term insurance pays a guaranteed amount upon your death and there is no fixed term. However, premiums for this type of insurance can change. A portion of the premium you pay is invested and its growth helps keep premiums low.
However, there have been reports of sharp increases in premiums for life insurance.
These policies are often used as part of inheritance tax planning and you should consult a financial advisor before purchasing one.
How much insurance should you get?
Decide what you want the insurance to do. If you want to pay off all debts, including the mortgage, and provide a good standard of living for your dependents, you must calculate the cost of these debts when buying.
If those potential costs are likely to come down over time—the mortgage is paid off and the kids become financially independent—you can reduce the cost by purchasing a diminishing term guarantee.
Think about other costs your insurance may have to cover, for example funeral expenses. You may have other insurance policies or employee benefits that are available to you in the event of your death. Keep these things in mind to reduce your coverage cost.
Many people already have a “guaranteed term mortgage”. Usually, these policies are sold to people when they take out a mortgage. Simply put, it covers the value of the mortgage, but nothing more than that. If you have, you can subtract the cost of your mortgage from the amount of life insurance you need to purchase.
Use our life insurance calculator to give you an idea of how much you should get.
Get value for money
A few relatively simple actions will allow you to greatly improve the value you can get from your life coverage.
Joint life insurance policies are often offered to married couples. This means that the policy pays the same amount if either of them dies. However, this is only appropriate if both parties need the same level of coverage.
Furthermore, the price of joint coverage is often slightly, if at all, cheaper than two single life policies with the same amount guaranteed each. Taking two separate policies instead of a combined policy means that if the worst happens and both parties die, any dependent will get double the salary.
› Compare 10,000 life insurance offers
Have a written “in confidence” policy
Another important step when purchasing life insurance cover is to make sure it says “in confidence.” Simply put, this means that the proceeds from a life insurance policy will fall outside the estate of the individuals upon their death, and therefore will not be taken into account when calculating inheritance tax.
Writing a trust policy is relatively simple but does require some form filling. Customers who purchase insurance without receiving advice from a regulated advisor are not always advised of the option to write the policy in trust.
You can read more about this here. If you are unsure of the best course of action, speaking to a financial advisor may help.
Pay less for your coverage
Insurance companies calculate the life insurance premium using information about your health, age, occupation, and lifestyle. So a spirited man with a smoking habit of 50 a day would pay more than a vegetarian librarian.
Most people wouldn’t want to do something as drastic as changing careers to get cheaper life insurance, but some might be willing to lose weight or quit smoking.
You must have given up at least one year to be classified as a non-smoker but putting in the effort can wipe pounds off your monthly payments. And even if you go back to becoming a smoker, your insurance policy should still be in place.
How to get The The cheapest life insurance policy
Nowadays, you can get life insurance from the shelves of your local supermarket, as well as through price comparison websites in addition to your traditional insurance broker or financial advisor.
Traditionally, brokers have been a better option than going directly to the insurance company – they help you compare the cheapest.
Now, the new breed of brokers are much cheaper than the traditional brokers. Here’s why…
• Brokers are paid by a commission from the insurance company, usually £700.
• Some of these brokers are willing to forgo the commission they receive in order to make your policy cheaper.
• They spread the commission, say £700, over the monthly installments on your policy, which can make it a few pounds cheaper each month. On some policies, this could save you thousands of pounds.
• In return, these companies charge a one-off fee, usually £25 or £35, for the comparison and delivery of the commission.
This fee option is great if your situation is not complicated and you just want to purchase the basic term warranty.
Money-minder.com is one such broker. It will give you all the commission back through the quote – so the monthly installments should be much cheaper than similar quotes from regular brokers. In return, you only need to pay a £35 site fee.
It also has a tool to help you determine if you are making the right decision. And if you’re still unhappy, you can talk to a counselor on the phone or get one to come to your home – although you’ll pay higher premiums to pay for the advice.
Cavendish Online also offers discount (£35 online or £45 by phone), MoneyWorld (£25 or £30) or online life insurance.
Savings Example (March 2009)
| Provider | smoker (monthly) | smoker (full term) | Non-smoker (monthly) | Non-smoker (full term) | |
|---|---|---|---|---|---|
| Data based on 35-year-old male at guarantee level up to £300,000 over 20 years | |||||
| Discount brokers used in comparison: Cavendish Online, Life Assurance Online, and Moneyworld | |||||
| Aviva – direct | £36.17 | £8,680.08 | £20.18 | £4,843.20 | |
| Aviva – through discount brokers | £26.60 | £6,384.00 | £14.90 | £3,576.00 | |
| ———- | ———- | ||||
| savings | £2,296.08 | £1,267.20 | |||
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Updated by Gillian Bevis – May 2010
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