How to Save Money on Life Insurance: A Guide

One fact of life is that, sadly none of us gets to choose when our time is up. While protecting our family/loved ones is at the forefront of our minds when buying life insurance; the potential costs are a key consideration too. Thankfully, there are several ways to save money on life insurance,.

In this guide, we'll be looking at cheap life insurance and how you can keep premium costs down. So you can ensure your family is cared for in the difficult times ahead.

How does life insurance work?

If you didn't already know, life insurance is a type of insurance policy designed to provide financial support for your family in the event of your death. When you die, your insurer pays out a cash lump sum to your loved ones, lessening the financial impact of your passing.

Once you take out life insurance cover, you are required to pay monthly premiums to your insurer. If you are unable to make these payments, your cover may be cancelled. In this occurrence, you won't be able to claim any money for the premiums already paid.

Please note: The insurance products offered by Cavendish Online have no cash-in value at any time. If you stop paying your premiums your cover will stop, your policy will end, and you will receive no benefit. If you have not claimed before the end of your chosen policy term, the policy will end, and no benefit will be paid.

If you are facing financial difficulties and can no longer afford your premiums, please contact your insurer as soon as possible to stop the plan from lapsing automatically. They may have a scheme that allows you to keep the cover.

Why buy life insurance?

When it comes to life insurance, there are more reasons to buy cover than not to. Sadly death is something we cannot prevent, but we can plan for it, ensuring our loved ones are supported for the future.

Amongst many things, the pay-out from a life insurance policy can be used to support your family with finances such as:

If you're unsure on how much cover you need, take a look at how much you earn each month. This is a good indication of how much your family will need in your absence.

You should also consider any loans or debts you have outstanding, such as a repayment mortgage. Your family will be required to continue paying the repayments in the event of your death.

There are also additional factors that affect the cost of your policy, though this can depend on the type of policy:

• Age: The older you are, the higher your monthly premium payments will cost. If you take out a policy with ‘guaranteed’ premiums, they will likely be fixed throughout the policy term so it's best to take out a policy earlier to make sure your premiums are cheaper.
   

• Health: Your overall state of health is a key indicator as to how much you will likely have to pay. The healthier you are the less your premium costs will be. Your insurance provider will normally ask you about both your medical history and your family medical history.
  
  Having a health condition doesn't mean you won't be able to get life insurance. But it may be more expensive as a result. See - Can I get life insurance if I have pre-existing conditions?
   

• Lifestyle: You'll be asked about your height, weight and any lifestyle choices that may impact your health and therefore may increase the cost of your policy(such as whether you smoke or participate in dangerous hobbies).
  
  Even if you smoke, quitting may save you money on life insurance. Some providers can offer cheaper life insurance premiums to recent non-smokers, just so long as you've quit smoking for 12 months or more.
   

• Occupation: If you work in a job that is considered high-risk, you may end up paying higher premiums to account for the added risk from the insurer's perspective. However, this isn't always the case and depends on the insurance provider's underwriting stance.

When you apply for cover, your insurer will ask you to fill out a questionnaire. This will help them gain an accurate understanding of your health and the type of policy you're looking to buy. It's important to answer truthfully, otherwise your family could be denied a claim later down the line.

So, what are the main types of life insurance available?

Types of life insurance policies

The type of life insurance you choose depends on your circumstances, both health & financial related. There are a wide range of options when searching for life insurance, so here are some of the popular policy types available:

Whole-of-life insurance

Known by insurers as ‘life assurance’, this type of cover protects you for the rest of your life. When you die, your family receives a cash lump sum to support them in this challenging time.

The value of your payout is generally fixed throughout the policy as well as the cost of your monthly premiums, unless you opt for an increasing policy. It’s important that you keep up with your monthly payments or your insurance plan my lapse.

Though this is typically the most expensive type of life insurance, the benefit is that your loved ones receive a pay-out no matter when you die - so long as you keep up with your monthly premiums!

Term life insurance

Unlike whole-of-life, term policies cover you for a certain period of time or ‘term’ (i.e. 30 years). Though this offers a little more flexibility, if you survive the term there won't be a payout. Term insurance is an affordable option for life insurance. You can use it as a shorter term option as you may want to take out a different type of policy later down the line.

Term life insurance has three levels of cover:

• Level term cover - Both the cost of your premiums and pay-out amount are fixed throughout the term. This type of cover is ideal when you are young as this allows you to lock in a cheaper premium rate.
   

• Decreasing term cover - Sometimes referred to as 'mortgage life insurance'. This is used to cover large payments like a mortgage. The payout value of your policy decreases over time as you make repayments on your mortgage.
   

• Increasing term cover - This type of cover is designed to protect the value of the eventual payout from inflation. The pay-out value increases over time to protect the value, however, your insurer may also increase your monthly premiums.

Joint life insurance

A joint life insurance policy provides cover for two people under a single policy. It’s typically a cheap option for married couples, long-term partners or business partners. Joint policies can also be easier to manage than taking out separate policies for you and your partner.

Rather than taking out two individual life insurance policies, joint policies cover both people, however, there are downsides. This type of policy comes in two forms - joint life, first death and joint life, second death.

Joint life, first death policies only pay out if the first policyholder dies (within the policy term). The surviving partner will no longer be covered and will have to take out another policy if they need further cover.

Joint life, second death only pays out upon the death of the second person, meaning there is no payout for the first party when they die. 

Joint life insurance is available for most types of plans - term life insurance, whole life insurance, family income benefit etc. 

Over-50s life insurance

If you’re 50 or over most standard life insurance will have higher premiums. With over 50s life insurance, you are guaranteed cover with no medical examination or lengthy application.

When you eventually die, a lump sum will be paid out to your loved ones. The downside is that the payout from Over 50s policies are typically smaller than fully medically underwritten term life insurance policies, as your health isn't taken into account.

Critical illness cover

This is designed to provide you and your family with financial security if you become seriously ill, injured or disabled. With critical illness cover, you receive a one-off payment to help you and your family with mortgage and living costs if you are diagnosed with one of a specified list of illnesses or medical conditions of a defined severity.

Whichever type of life insurance you decide on, it's important to take your time and make sure you understand all the terms and conditions of your policy.

Which policy is cheapest?

Generally speaking, term life insurance is the cheapest type of life insurance policy. This is mainly because, unlike whole life insurance, it provides temporary cover (i.e. over an agreed, set period of time) rather than permanent cover.

The type of cover you opt for depends on the circumstances of you and your family. For example, if you want to cover a repayment mortgage, decreasing term life cover may be a good option to consider.

However, if you are solely focused on providing indefinite financial support to your loved ones, whole life insurance may be more beneficial in the long term.

2. Choose the right amount of cover

No matter which policy you decide to take out, it’s important that you assess the financial needs of your family. There’s no need to pay towards a larger pay-out amount if your family can still get by with less.

If you are unsure about how much cover you and your family may need, why not consider speaking to an adviser, who can make recommendations based on your current situation.

4. Don’t smoke

It’s well known that smoking is damaging to your health, not to mention your wallet. Most insurers charge extra for premiums if you are a smoker due to the significant decrease in life expectancy it causes.

Therefore it’s best to give up as soon as possible, not only for your health but also from a financial perspective. Some insurers may reduce the cost of your premiums if you quit and manage to stay smoke-free.

5. Get a ‘term’ life insurance policy

Term policies are typically much cheaper than a whole of life policy, so choosing wisely can offer considerable savings. This type of cover provides protection for a set amount of years, acting as an ideal solution for short-term cover. Providing you die within the policy term, your insurer pays out a lump sum of money to your loved ones.

Or, if you want to get cover for both you and your spouse, you can opt for a joint policy. Many couples find this to be cheaper and easier than managing separate policies.

At what age should I get life insurance?

When it comes to life insurance, the earlier you start the better. Generally speaking, the younger and healthier you are when you take out a policy, the cheaper your premiums will be. This is because insurers view younger people as being less of a risk than older people.

It's important to remember that life insurance isn't just for those in their later years. Even if you're young and healthy, it's still worth considering taking out a policy. This is because life insurance can provide financial protection for your family should the worst happen.

It's also worth noting that if you wait until you're older to take out a policy, you may be charged more due to the increased risk of death.

Who really needs life insurance?

Life insurance can be especially beneficial for those with dependents, such as parents with young children or those who are married or in a long-term relationship. This is because the pay-out from a life insurance policy can provide financial support for your family should you pass away.

It's also worth considering taking out a policy if you have any outstanding debts, such as a mortgage or credit card debt, as this can help to protect your family from having to take on these costs. It's also important to consider life insurance if you're self-employed, as this can provide financial protection for your family should you pass away.

What if I have savings?

While savings can certainly help provide financial security, they may not be enough to cover all your costs, especially if you have dependents or outstanding debts. Instead, life insurance can provide an additional layer of financial protection for your loved ones, ensuring that they are taken care of even if your savings are depleted.

Think about the future and how that could affect any saving you have. For example, if you had an emergency in which your savings would be used, you could then be left with very little protection. Whereas with having life cover, you still have a policy to fall back on.