We all work hard to provide for our loved ones and having life insurance is a crucial step to ensure their security if we are no longer able to. Shockingly, figures suggest that around one in four UK adults with families do not have life insurance. This leaves many families vulnerable when they could be protected, often due to the perception that premiums are too expensive.
Luckily, Steve Case of life insurance experts Insurance Hero, has provided top tips for people looking to take out a new policy and unsure what to look out for or those with existing policies hoping to cut down their premium.
By following these tips, you can lower your premium costs and enjoy the peace of mind that comes with knowing you have the best coverage for yourself and your loved ones.
Don’t over-insure yourself
Life insurance is different for everyone, depending on your circumstances, and a ‘one-size-fits-all’ approach to taking out a policy will rarely provide the best coverage. Your policy should accurately reflect your family and lifestyle—whether you have a mortgage, whether you have children and how many, your age and even if you own a business. These are all factors that will influence both the premium cost and your recommended level of coverage.
However, while the saying “better to be safe than sorry” often holds true, it is common for people to over-insure themselves when it comes to life insurance, opting for policies with coverage exceeding their family’s needs. This can lead to unnecessarily high premiums and may even discourage those considering taking out a policy.
As a general rule, a single individual without dependents should consider coverage equal to 5-10 times their annual income. This amount typically covers outstanding debts, funeral expenses, and a financial safety net. If you are married or partnered, it’s advisable to increase coverage to 10-15 times your annual income. This increases further to a recommended 15-20 times your annual income if you have children to ensure financial security for your family’s future.
Of course, these recommendations can vary depending on individual circumstances and needs, and something which needs careful consideration when taking out a policy.
The younger, the better (and cheaper)
Getting life insurance when you’re younger is a smart move. Typically, the younger you are, the lower the premiums you will be offered. This is because you’re seen as ‘less risky’ to the insurer and typically deemed to be fit and healthy. Premiums tend to increase with age, which means if you take out a policy in your 20s or early 30s, monthly payments are usually lower than those that would be offered to you if you delay and take out a policy later in life.
For example, assuming a potential policyholder is a healthy, non-smoker, the monthly premium for £450,000 worth of coverage may be offered at £10.45 for a 20-year-old, but this may be as high as £42.13 a month for a 40-year-old—around four times higher.
Guaranteed premium policies could save you more in the long term
While the annual or monthly premium payments for life insurance may be the main factor deterring those without life insurance from taking out cover, the policy with the cheapest initial premium payments may not be the most wallet-friendly in the long term.
Guaranteed policies have fixed premiums, which remain the same for the policy term. In contrast, reviewable life insurance policies can be reviewed and adjusted periodically. While the latter often offer lower initial payments and can prove attractive to prospective policyholders, the insurer can increase the premium upon reviewing the policy.
Ultimately, while guaranteed policies may appear more expensive in the beginning, they can allow for certainty of future costs and help you budget accurately.
Shop around
Like many other services offered by multiple providers, shopping around and comparing insurers could greatly impact the savings you make on your premium. However, analysis of Google Trends data has found that since the beginning of 2020, internet searches for “compare life insurance” have reduced by 52% on average.
Shopping around for insurance is a smart move to secure the best rates. Insurance companies offer varying prices and discounts, so comparing options could help you make savings you might otherwise miss. With so much competition on the market, you can often get better deals by exploring your choices, potentially saving you hundreds over the term of your policy.
Switch up your lifestyle
Your life insurance premium is significantly influenced by the risks associated with your lifestyle and circumstances. Adjusting your habits can help reduce your premium.
For example, staying active and eating a balanced diet can lower the risk of many health conditions in the future, which may otherwise lead to higher premiums. Quitting smoking is another major factor—non-smokers often get lower premiums, and if you have quit smoking, proving this could lower your rates too.
Some factors evaluated to determine your life insurance premium, such as your occupation, may be impractical to alter to reduce a policy premium. For example, an office worker’s premium would typically be less than that of a construction worker or an extreme sports instructor. However, by comparing policies across providers and exploring different types of policies, it can be possible to tailor your cover to suit your budget.
Regardless of your circumstances, you should always be as transparent as possible with your insurer to ensure financial security for your loved ones. Providing inaccurate information on any aspect of a policy can risk significant reductions or even a complete denial of a claim.
