One of the first reasons why people put off buying life insurance is that it is expensive, but this is not always the case. Cheap life insurance is easier to get than you might think — as long as you know what to look out for.
Although death is an uneasy subject, it is a factor of life that you cannot avoid. That is why it is even more important to put plans into place, especially when it comes to protecting your loved ones.
Why Do I Need Life Insurance?
Ask yourself this question: How would my family manage if I were to pass away? The last thing any of us want is for families to be left to struggle financially when we die. Life insurance is a great way to provide your loved ones with financial protection for the uncertain times ahead.
When you die, a lump sum is paid out (depending on the type of cover) to your loved ones, which they can use to cover costs such as:
- Living expenses
- Household bills
- Mortgage repayments
- Credit card payments
- Paying off loans & debts
- Funeral arrangements
Even if you think you cannot afford life insurance, there are some ways you can save money on cover.
1. Buy Cover Early
Whereas a fine wine improves with age, the cost of life insurance is the exact opposite. If you leave it too long, life insurance can lead to significant increases in cost. As you get older, in an insurer’s eye, you become a higher risk to insure and so they will charge higher rates. The best solution is to take out cover at the earliest stage when premiums are at their lowest.
2. Choose the Right Type of Cover
There are two main types of cover: whole life insurance and term life insurance. Both of these policies have an impact on the amount you pay.
Whole life insurance protects you for the remainder of your life; however, because of this, it is the most expensive type of cover. While it is costly, it provides permanent protection for you and your loved ones. Once you die, a fixed amount is paid out to your loved ones so long as you continue to pay your monthly premiums.
Term life insurance is generally cheaper than whole life insurance as it only provides protection for a set period of time (i.e. 20 years). Your family only receives a payout if you die within this timeframe.
Term life insurance has three main forms of cover:
- Level term – This is the standard type of term insurance. The payout amount is fixed throughout the policy as well as the cost of your premiums.
- Decreasing term (also known as “mortgage life insurance”) – This is designed to cover large payments that your family would struggle to pay off if you were no longer alive. The payout value decreases over time as you pay off the outstanding balance on the payment.
- Increasing term – This is designed to protect the eventual payout value from inflation by increasing over time. This can also cause your premiums to increase too.
If you were looking for a low-cost policy, level or decreasing term life insurance would be your best options.
3. Look for Fixed Premiums
Many types of life insurance offer fixed monthly premiums. This means that you pay the same throughout your cover. Reviewable premiums can start as cheap, but they can be increased due to age and health. The main benefit of fixed premiums is that even as you get older, you still pay the same as when you started your cover.
4. Stop Smoking
Smoking has a huge impact on your overall health, life expectancy, and especially the cost of life insurance. When you apply for insurance, an insurer will base the cost of your premiums on your health and lifestyle. Therefore, if you are a smoker, you will pay significantly more for premiums than non-smokers. However, you can reduce your premiums if you quit and stay smoke-free for at least 12 months. After this, the cost drops dramatically. So not only will quitting benefit your health but can also save you money on life insurance.
5. Consider Joint Cover
A popular choice of cover for couples, joint life insurance protects two people under one policy. It is often considered cheaper and easier to manage than individual policies. Joint cover is best for those who share joint responsibility of their families’ finances. That way when one of you dies, the other will have enough money from the payout to support your children and themself.
This cover works on either a first death or second death basis. With first death, the policy pays out after the first death of a policyholder, in which the policy ends. With second death, the policy pays out after both policyholders have died. The payout then goes to your children or a chosen beneficiary. This is especially valuable if both parents were to die at the same time, such as in a car accident.
6. Don’t Over-Insure
When buying life insurance, determine how much cover your family will need to cover the outgoing costs of your household. Over-insuring can lead to spending money for cover your family may not need, which could be spent in many other ways.
When you apply for life insurance be sure that you know:
- The type of cover you need;
- Length of cover (i.e. term or whole life cover);
- What finances could impact your family (mortgage, loans or debts); and
- How much you want your family to receive when you die.
7. Shop Around for the Best Quotes
Thanks to the internet, there are numerous ways to find and compare life insurance quotes from top providers. The easiest option is to use comparison sites, which can help you find the cheapest quotes in minutes.
Another way is to get a professional advisor through an insurance broker. They can offer professional advice on buying coverage and on which type is best for your circumstances.
There are two main options:
- Advisory broker – Works on commission which can add to costs; and
- Execution-only broker – Tries to cut costs by charging a one-time fee as opposed to a commission.
You can also buy directly from the insurance company; however, this can be time-consuming, not to mention costly.
