The cost of life insurance has fallen for the second year in a row according to new research from Sainsbury’s. We round up ways you can cut the cost of life cover and the pitfalls to watch out for.
The research found that average life insurance premiums have fallen across the board, regardless of gender or whether or not you’re a smoker. However, there is a huge gulf between the cheapest and most expensive policies, so it’s important to shop around and, if necessary, take independent advice.
Ways to save on life insurance
Which? Money experts have picked their top 10 ways to cut the cost of life cover.
1. Shop around
The price of life insurance premiums varies hugely between providers. Your bank may not offer the most competitive deal, so make sure you get a variety of quotes.
2. Online insurance brokers
Online insurance brokers, such as Cavendish Online and Godirect.co.uk, can often offer cheaper prices as they pay back to you some or all of the commission they receive from insurers. This can reduce the ongoing premium you pay.
3. Price comparison sites
Price comparison websites like Moneysupermarket.com, Comparethemarket.com or Confused.com allow you to compare quotes from different providers. Make sure you visit a selection of sites as no individual site covers the whole market, and the same insurer may offer a better deal through one comparison site compared with the others.
If you use an online broker or price comparison site, make sure you know what type of product you’re buying as the cheapest is not always best. For example, low-start policies may be the cheapest when you first take out the policy, but the monthly premium will increase over time. Similarly, reviewable policies may appear cheaper, but, as the name suggests, the premium you pay is recalculated on a periodic basis (say, every five years). As you are older at the review date, it’s likely that your premiums will increase, potentially making the insurance unaffordable just when you’re more likely to need it.
4. Cashback sites
If you’re buying life insurance online, cashback sites such as Quidco and Topcashback could help you get an even better deal. You’re not buying the insurance policy from the cashback site, but rather accessing the insurer’s own website through the cashback site. The cashback site rebates to you some of the commission it receives from the company selling the insurance.
Cashback deals only work if the premium itself is competitive. There’s no point earning £50 in cashback if the monthly premium is £10 more than you’d pay elsewhere. It’s also worth checking a selection of cashback websites as cashback offers vary between sites.
5. Take advice
If you’re not sure which is the best type of policy for you, it’s best to take independent advice. Specialist IFAs like Lifesearch and Lifeassureonline are good places to start.
6. Check your existing cover
It’s worth checking if you already have existing life cover elsewhere. For example, your employer may offer life cover as standard, as may your employer pension scheme. If you save or borrow with a credit union, you’ll often find that life cover is included.
7. Consider decreasing-term policies
With a decreasing-term policy, the amount you’re covered for decreases over the term of the policy. These policies are suitable if you want to cover a debt that reduces over time, such as a repayment mortgage. Premiums are usually significantly cheaper than for level-term cover as the amount insured reduces as time goes on.
8. Give up smoking
Life insurance premiums are significantly higher if you smoke as you’re more likely to die early. While giving up probably won’t result in cheaper premiums immediately, many insurers will offer you cheaper cover once you’ve been tobacco-free for a year.
9. Write your policy in trust
Writing your life insurance policy in trust will not save you money right now, but it’s always worth doing and could save your family a huge amount in inheritance tax (IHT). If you write the policy in trust, when you die the insurance payout sits outside your estate, so isn’t usually liable to IHT of 40%. If you don’t put the policy into trust and your estate is worth more than £325,000 (or £650,000 for married couples and civil partners), your estate will be taxed on the excess.
To ensure the trust is set up properly, it’s usually best to take advice (see point 5, above).
10. Don’t bother buying life insurance
It may sound counter-intuitive, but do you really need life insurance? If you’ve got young children or other dependent relatives, it makes sense to take out life cover, but if you’re single with no family to support, or your mortgage is already paid off, you may find you don’t really need life insurance.
In this case, it’s far more important to consider income protection (IP) instead. IP will cover you if you’re unable to work through sickness or accident.