Life Insurance - 6 tips to save you money & improve cover
Some useful information to consider - eg should you choose single or joint policies? decreasing or level insurance? what about tax efficiciency? terminal or critical illness? and if it is worth seeing a life insurance specialist!
1. Joint policy or two single policies?
The cost of two single life policies does not cost much more than a joint policy.
eg. A male and female aged 35, who are both non-smokers, require £250,000 if one of them dies during the next 20 years whilst their young family are financially dependent on them. The male is a commercial diver and they both dive for pleasure which includes an annual wreck exploration. This flags them as a high risk for insurance providers.
A joint policy that pays out £250,000 if one of them dies, costs £25.50 per month*.
What if they were involved in a fatal RTA together? Would £250,000 still be enough for the children’s guardians to bring them up without struggling financially?
Two single life policies for £250,000 cover each would cost just £3 per month* extra for this couple.
If you already have a joint policy it may well be worthwhile converting this to two single policies.
(*Guaranteed Premium rates correct as of 27th January 2015).
2. Decreasing or Level Insurance?
If your life insurance is to protect your mortgage then you should consider what type of mortgage you have. Is it a capital repayment mortgage or interest only?
If you have a capital repayment mortgage where the capital is repaid monthly, then the mortgage liability will reduce during the term. A decreasing policy is designed to cover any outstanding liability as the cover will reduce in line with your liability. A level term policy is normally used to protect an interest only mortgage. You ought to check that you have the right policy. A decreasing term assurance is cheaper than a level term assurance.
3. Review you existing cover
Do you still dive to the same depths and locations you did when you took out the policy?
If your diving activities have changed since you took out the policy then any loading which an insurance company may have imposed may be removed if the perceived risk is not as great.
4. Tax-efficiency for Directors of own company
It is now possible for a limited company to take out a policy on its employees for the benefit to be placed in trust for a nominated beneficiary other than the company. Thus a director may arrange a policy for himself that will be paid by the company with the benefits being paid to his beneficiary in trust and tax free - it is not treated as a benefit in kind and is not paid out of an individual’s taxed income. This is well worth considering.
5. Terminal Illness or Critical Illness
Terminal illness cover is normally included free of charge with a typical life insurance policy This provides the benefit to be paid out if you are diagnosed with a terminal illness and have a life expectancy of less than 12 months.
Critical Illness pays out the benefit upon the diagnosis of a critical illness such as a heart attack or cancer.
Do not confuse these two. You may think that you have critical illness cover when you haven’t.
Critical illness can be added to a life policy and need not be for the same sum assured. At least you could have some cover if your budget is tight!
6. See a specialist
Most insurance companies have different views on risks presented to them. It will probably mean that if you use a specialist he will know which companies will impose a loading and those which don’t. They will also probably be able to get you a wider level of cover.