While a ‘cheap’ policy may not really be what you want when looking for a product as important as life insurance, there are ways to keep your outlay down without compromising on the cover you need.
Comparing life insurance quotes is the first and, arguably, most important step and TopAssur helps you to quickly and easily compare multiple life insurance brands, looking at policy features as well as price.
But there are a number of other things to consider that should ease the burden on your wallet while keeping your peace of mind.
Don’t over-insure yourself
Some people don’t take out sufficient cover in order to keep the cost down. That’s a mistake, because it leaves your loved ones in a fix if they have to claim.
But it’s also a mistake to over-insure yourself.
So, work out exactly how much cover you need and take out a policy for that amount. If you over-insure yourself, you’ll pay more than you need each month – and that’s cash you could spend enjoying time with your family.
Choose the right kind of cover
There are a number of different types of policy
But the kind of policy that you choose will have a dramatic impact on the cost of your policy. Whole of life insurance is the most expensive cover to take out, because it will inevitably pay out at some point.
However, if you take out term insurance instead, then you’re only covered for the duration of the policy. The insurer will look at the risk of paying out during that time and set the price accordingly.
This is the most common type of life insurance and it’s suitable in many circumstances. Parents, for example, may only want a policy that will cover them until their children have left home and/or they’ve paid off the mortgage.
Look for guaranteed premiums
The typical options you’ll be offered for premium payments for life insurance will be ‘guaranteed’ or ‘reviewable’.
Reviewable premiums are likely to be initially cheaper, but they can fluctuate over the length of the policy and may take into account things such as your age and state of health.
This could mean that they end up costing more than a guaranteed premium – the latter offer a guarantee that the insurer will never change the premium price over the entire length of the policy.
Let your cover level fall year by year
Think about why you want insurance right now. Perhaps you have young children, a large mortgage and various debts. You’ll need a policy that ensures all those costs are taken care of if you’re not around to earn a salary.
But as time goes on, you’ll hopefully need less and less cover. After all, you may expect to pay down the mortgage and reduce any debt, while your children will get closer and closer to leaving home.
One good way to keep the cost of your premium low is to arrange a decreasing term life insurance policy.
This may mean, for example, that the cover will last 25 years, but the promised payout will fall slightly during each year of the term.
Make sure you know both the advantages and disadvantages of joint policies
This means that there’s less risk of a big, costly payout for the insurer – meaning that the price of your premium is lower.
Consider joint cover
If you’re part of a couple then a joint life insurance policy is certainly worth looking into, but note that there are pros and cons to this and you may be better off taking out two separate policies.
A joint policy should be cheaper and more convenient to arrange than two individual ones, but it will only pay out once, something you need to be clear on if you have dependants.
There may also be problems if a couple splits up at a later date, so make sure you know both the advantages and disadvantages of joint policies… speak to an impartial adviser if you’re unsure.
Start young
Your premium will be worked out based on your personal risk – namely, how likely the insurer thinks you are to claim.
If you take out your policy as early as possible, you’ll usually qualify for cheaper insurance than you might when you’re older.
Switch to a healthier lifestyle
No-one wants your life insurance policy to have to pay out as it means you’ll no longer be here, your insurer doesn’t want this and nor does your family.
Adopting healthier habits can really cut the risk you’ll need to claim, meaning your insurer will usually lower the premiums.
So, give up smoking, cut down on the alcohol, lose any excess weight and take up some exercise.
If you can show your insurer you’ve sustained a healthier lifestyle for a year or more, they may agree to cut your premiums.
This area of the insurance industry could be transformed in years to come by the rise of usage-based insurance (UBI).
As with telematics car insurance, firms like to use technology to monitor an individual’s behaviour and base the premiums they charge on data rather than assumptions.
Healthcare insurers in the USA are already giving customers free fitness trackers and offering lower premiums or other benefits for meeting daily exercise goals.
Such practices may well become more commonplace in the coming months and years as technology comes into more areas of our lives.
Consider switching life insurers and/or multiple policies
If you’ve had a change in circumstances, you’ve made positive lifestyle changes and/or you’ve found a better policy than your existing one, you may want to consider switching.
However, there are things you need to be aware of… guidance can’t be as clear as with car and home insurance where shopping around and avoiding the pitfalls of auto-renewal is the right thing to do.
As you get older and/or you have health issues, your choice of life insurers will be more restricted and premiums will rise, so you need to think carefully before cancelling a policy you took out when you were younger and, perhaps, healthier.
You may have protection policies in place through your employer, but if you leave your job or lose it you’ll also lose that insurance
Remember that if you’ve adopted a healthier lifestyle you can try speaking to your existing insurer and asking for a cut in your premium.
It may also be an option to keep your existing cover in place and to take out a new, additional policy;
If you are considering switching, you should think about:
- Checking your existing policy for exit fees
- Keeping your existing cover until the new policy is in place
- Reading the terms and conditions of the new policy with care to ensure you have the cover you expect and need
Take care with optional extras
Many policies offer cover features such as waiver of premium, bereavement counselling for beneficiaries and terminal illness cover.
These may be included as standard features of a policy or offered as optional extras; if it’s the latter, think carefully about whether you need the features as you’re likely to pay more for them.
Think about additional and existing cover
Remember that you should only buy what you need, so think about other protection policies you may have in place and whether you need to pay for added extras you may be offered, such as critical illness cover.
As just one example, you may already have an income protection< (IP) policy - this can offer similar cover to critical illness and some IP products also offer a death benefit. Remember that you may have any or all of these protection policies in place through your employer, but if you leave your job or lose it you'll also lose that insurance. Self-insuring is another consideration, whereby you save the money that you would have paid in premiums to build up your own funds. While everybody needs a rainy-day savings fund, you should be aware that you may need a very significant sum to match the sort of payouts that can be offered by policies like life insurance, critical illness cover and income protection.
Consider writing your policy ‘in trust’
Although life insurance payouts are not liable to income tax or capital gains tax, depending on the circumstances your heirs could be liable for inheritance tax on the funds.
This can be easily avoided by having your life insurance policy written in trust, a straightforward procedure that your adviser or insurer can help you with.
If this means your dependants getting a larger, tax-free slice of a payout it means that you could reduce the overall size of the payout, which will reduce the cost of your premium.
Make a will
Making a will could save you money on life insurance in a similar manner to writing policies in trust; if your intentions for your estate are defined clearly and help minimise inheritance tax payments, it could mean that you need to arrange a smaller payout for which you’ll pay less in premiums.
Compare companies for the right life insurance quote
To get the life insurance cover you need at the right price, compare the market. There are four common ways of doing this.
Use a life insurance comparison site such as TopAssur
A time-efficient way of comparing prices and policy details through one quick and easy search. You’ll have access to products from all of Luxembourg’s leading insurers and you can search at any time of the day or night.
Don’t be tempted to take out less insurance than your family actually needs in order to keep the price as low as possible
Phone individual companies
This can be time consuming, can limit the comparison against other providers and may restrict the times when you can search for your insurance.
On the plus side your queries may be answered straight away, you can try haggling and it may be a way to find cover for particularly unusual circumstances.
Look at insurance companies’ own internet sites
This allows you to get a quote in your own time, but this again can be a time-consuming option and one that limits the comparison against other insurers.
What’s more, strange as it may sound, you may find that you can get the same policy cheaper by going through a third-party site or adviser than by going direct to the insurer.
Visit a broker or insurance company
Brokers will compare a number of different insurance companies on your behalf and this can be a way of finding cover for unusual circumstances.
Convenience can be a downside to using a broker and remember that your search will be limited to those insurance companies the broker deals with.
Execution-only brokers may be a way of cutting the costs of life insurance, offering a one-off fee in place of a commission.
These differ to advisory brokers who do take a commission, and also to the full – and often expensive – services that can be offered by independent financial advisers.
How NOT to cut the cost of cover
You might be tempted to take out less insurance than your family actually needs in order to keep the price as low as possible. But that’s not a good idea.
You have a life insurance policy for peace of mind, so that you know your loved ones will be financially secure if something happened to you. If your policy doesn’t provide enough cover, then they won’t have that security.
It might also seem tempting to lower the premiums by playing down your risk.
You might decide to lower premiums by saying you don’t smoke when you do, or by down-playing the amount of alcohol you consume.
This is a really risky approach. Firstly, your provider may well ask for a medical, which could flag up any conditions you’ve tried to conceal.
Secondly, if the insurer discovers you misled them while it’s investigating a claim it might refuse to pay out, leaving your family with nothing.
Not sure how much you need? Read our follow up to this How Much Life Insurance Do I Need?