Life insurance is a must-have product for many of us, and, although we don’t want to compromise on the level of cover we receive, it always helps to keep costs as low as possible.
Shopping around and comparing prices on a like-for-like basis is essential, and probably the best strategy you can use to find the best deal. However, there are also a number of other things you can do to save your hard-earned cash.
It can be tempting to take out less cover than you really need in order to keep down the cost of your premiums. This is definitely a mistake as it leaves your loved ones with inadequate funding should the worst happen. Similarly, though, taking out too much life insurance can also be a bad idea. A life insurance policy is designed to meet your family’s financial needs should you be no longer around to support them, not to finance a luxurious lifestyle. The more cover you have in place, the greater your premiums; this is often money that could be better spent whilst you are still around to enjoy it.
There are a number of different types of life insurance policy on the market, and you need to make sure that you take out one that meets you needs and requirements. Your choice of policy will affect the cost of your premiums considerably. Term life insurance is cheaper, but only pays out if you die during the duration of the policy, whilst whole of life insurance is more expensive, but you are guaranteed a pay-out at some point.
With regard to premium payments, most insurers offer reviewable or guaranteed premiums. Reviewable premiums most likely start off cheaper than guaranteed premiums, but they alter over the policy term, often taking into account your age and the state of your health. On the other hand, guaranteed premiums, as the name suggests, are guaranteed to stay the same throughout the duration of the policy usually making them cheaper in the longer term.
Another way of keeping the cost of your premiums low is to take out a decreasing term life insurance policy. This type of policy pays out a smaller amount every year, taking into account reductions in the amount you owe on your mortgage, and the advancing age of your children.
If you are part of a couple then you could reduce the cost of your life insurance by taking out a joint policy. However, there are a number of things that you need to consider before you sign up. A joint policy will only pay out once so the surviving partner may need to take out a new policy at a later date; this could prove to be quite expensive as the cost of life cover increases with age. In addition, you could encounter problems if you split up.
As mentioned previously, the younger you are, the less expensive are your premiums, so take out a policy sooner rather than later if you want to keep your costs as low as possible. In addition, it pays to take care of your health and adopt a healthy lifestyle. Cut down on alcohol, maintain an acceptable bodyweight, and do not smoke. A healthy lifestyle means that your insurer will see you as a lower risk and reduce the cost of your premiums accordingly.
Although it often pays to stay with the same insurer, if you have experienced a significant change in your circumstances, and have found a policy better suited to your needs than your existing one it can be a good idea to switch your life insurance provider. However, before you do this there are a number of things that you need to take into consideration. Start by checking the small print on your current policy to see if there are any exit fees, and always keep your existing policy in place until your new one has started. Look out for optional extras and think about whether you really need them as they will add to the cost of your premiums. An example of this is critical illness cover; you may already have this as a separate, stand-alone policy, or as part of another insurance package (possibly via your employer) so avoid duplication.
An alternative to life insurance is self-insuring. This means that instead of paying premiums to an insurance provider you save the money yourself in order to build up your own funds. However, particularly at present when interest on savings is so low, you may find it difficult to match the amounts offered by a life insurance policy.
Life insurance payouts are not subject to capital gains tax or income tax, however, depending on your circumstances, your beneficiaries could be required to pay inheritance tax. This tax can actually be eliminated by having your life insurance policy written in trust. This is a relatively straightforward procedure, and it would, in effect, allow you to cut the overall size of the payout, and thus the cost of your premiums, by ensuring that your dependants receive all of the payout, tax-free.
Finally, making a will can also save you money by minimizing inheritance tax payments. By defining your intentions clearly you avoid any discrepancies which, once again, could mean that you are able to arrange a smaller payout resulting in less expensive premiums.