As a result of the COVID-19 pandemic the last two years has been extremely challenging for many families, both from an emotional and a financial perspective.
This has encouraged many parents to consider taking out life insurance for the first time.
Life insurance simply provides financial protection for your loved ones and acts as a safety net for a worst-case scenario.
You pay a monthly fee (the premium) in order to benefit from the cover protection and if you were to pass away during the set timeframe of the policy (the term), a cash lump sum pay out will be issued to your family.
The proceeds from a pay out are commonly used to clear a mortgage (allowing your loved ones to remain in their family home), cover future living costs, provide an inheritance and clear any outstanding debt. In fact the funds can be used as the beneficiaries wish.
So, having life insurance in place can make a lot of sense, providing reassuring peace of mind that your family will be provisioned for whatever the future holds.
However, at the present time where we are experiencing a damaging cost of living crisis and inflation is soaring many parents disposal income is being squeezed.
As a result, you may be wondering, how much life insurance actually costs and more importantly how best to secure the lowest possible monthly premium in 2022.
How much does life insurance cost?
Life insurance can be an extremely cost-effective way in which to ensure financial protection. It is possible to secure approximately £200,000 of cover from just 20p-a-day.
Leading life insurance broker, Reassured, claims the average cost of life insurance in the UK could be as low £13.24 a month.
However, there are many determining factors which impact the price of your premium, let’s explore the key points…
Your age at the point of application is one of the most influential factors which impact the price you pay for life cover.
Ultimately, the greater the risk to pose to the insurer the higher your monthly premium will be. As we age the chances of a life insurance claim naturally becomes more and more likely, therefore the younger you are the cheaper cover will be.
A good way of locking in a very low premium is to take our cover as a young adult for an extended term (up to 40 years).
Whether you are a smoker, or a non-smoker can greatly affect the cost of life insurance and this impact accelerates as we age. So, while a 25-year-old smoker may only pay a few pounds more a month compared to a non-smoker, a 50-year-old smoker could pay double.
As we all know, smoking is closely linked with several serious medical conditions and as a result insurers mitigate this increased risk by hiking premiums. However, you may be surprised to learn that UK insurers also classify those who use nicotine replacement products, such as vaping and patches as smokers too.
If you were a smoker but have quit the habit (well done) you will have to have given up for a minimum of 12 months before your smoking status can be changed.
Whilst it may be tempting to lie or withhold certain information during the application in order to secure a lower premium this could invalidate your policy and jeopardise a future pay out – always be open and honest.
There are many different policy types, decreasing term, level term, whole of life, over 50 plans and family income benefit.
Each policy type is better at covering certain aspects of your life and importantly each can carry a very different price tag.
For example, £100,000 of decreasing term cover could be secured for a few pence a day, however £100,000 of whole of life cover would be significantly more expensive.
Why? Because decreasing term policies provide cover for a set term. If you pass away after the term has expired then no pay out is issued. What’s more the pay out sum decreases with each passing month – meaning the risk to the insurer reduces over time, hence why it’s so much cheaper.
In contrast, a whole of life policy guarantees to pay out when (or if) you pass away. As a result, it is actually a form of life assurance not life insurance (as a pay our is assured) and is therefore much more expensive.
The cover amount, known in insurance as the sum assured, also affects your premium cost. Generally speaking, the greater the sum assured, the higher your premium.
Therefore, take the time to calculate the exact level of cover you require, especially if money is tight , (factoring in the impact of inflation too).
Key considerations include;
- Mortgage balance
- Family living costs (food, drink, fuel, clothing, leisure, mobile)
- Household bills (gas, electricity, water, council tax, broadband
- Children’s education (school fees, university fees, uniforms, books, trips)
- Childcare costs
- Funeral costs
The longer the policy term, the higher your monthly premium as the likelihood of a pay out is increased. In order to not pay more than in necessary, take the time to also consider how long you require life insurance for.
Often parents will set their policy term to ensure cover lasts until the children are financially independent and/or the mortgage is paid off.
It is not uncommon of people to secure term based cover (decreasing or level term) to protect their children and family home between 25 – 50 years of age and then take out over 50s cover in later life to provide an inheritance and/or cover rising funeral costs (average cost of a basic funeral £4,056 according to a SunLife report).
Joint life insurance
If your budget is limited and you are in a relationship you may want to consider joint life insurance.
Joint cover can be up to 30% cheaper compared with taking out two single policies and you pay one single monthly premium instead of two.
It covers both lives simultaneously, however, will only provide one pay out (usually upon the first death), after which the policy elapses – leaving the remaining partner without cover.
Two single policies could provide two pay outs – double the coverage. Therefore, if budget allows, especially if you have young children, this is a more comprehensive option.
Gender & ethnicity
Since the passing of the Equality Act 2010 insurance providers are not allowed to increase premiums based on an applicants’ gender, disability or ethnicity.
Another key consideration is your medical history. If you have suffered a serious medical condition in the past this could increase the likelihood of a future claim and therefore the cost of your premium.
Whilst the above statement is unsurprising, it may be more of a surprise that your family’s medical history could also impact the price you pay as certain illnesses are hereditary.
It is important to understand that insurers use different underwriting processes, and so what illnesses one provider may deem high risk may differ from another – another good reason to compare multiple quotes.
Top life insurance tips 2022
- Always compare quotes as costs can vary wildly between providers
- Consider using a comparison website or an FCA-regulated broker to save yourself time and money
- Take out cover as young as possible to lock-in the lowest premium (if budget allows)
- Take time to calculate the level of cover you require
- Take time to calculate the length of time you require cover
- Consider joint life insurance if money is tight as up to 30% cheaper
- Never lie or withhold key information during the application process
- Factor in any cover you receive through your employer like death in service, as this could be used to lower the level of cover you require
- Consider the impact of inflation on a future pay out when setting your sum assured
- Compare the cost of different policy types, to establish which policy best meets your needs and available budget
Disclosure: This is a featured post.