As we enter the new year it is a good time for reflection and contemplation.
Whilst many will be focusing on losing weight, getting fit or cutting down on their alcohol consumption, others will be evaluating whether their finances are in order. January is a great time to consider the financial protection you have in place for your family, especially if they rely on you financially.
One option is life insurance. Life insurance provides a financial safety net to protect your family if you are no longer around to provide. The proceeds from a policy are often used to clear a mortgage (enabling loved ones to remain in the family home and not have to downsize), help pay for rising living costs and/or cover funeral expenses.
It is estimated that more life insurance policies are sold in January than in any other month, after families have spent quality time surrounded by their nearest and dearest.
But which policy is the right option for you and how can you save money on your premiums? we have provided 5 top life insurance tips for 2023…
Consider a joint policy
For some couples, especially those on a tight budget, a joint life insurance policy can be a great option.
The main benefit of a joint policy is that they are approximately 30% cheaper compared to paying the premiums on two separate policies.
Whilst this option will cover both lives simultaneously, it will only ever provide one pay out (usually on the first death). After which the policy expires, leaving the surviving partner without cover.
In contrast, if you secure two single policies, whilst you will need to pay two separate monthly premiums, it could provide two pay outs and therefore double the coverage.
Consider writing your life insurance in trust
There is a way of ensuring that your loved ones receive the most from your selfless life insurance investment. However, it is estimated that only 6% of policyholders utilise it, despite it being completely free!
If you write your policy in trust, a future pay out can avoid/minimise 40% inheritance tax (IHT) after you pass away, ensuring your loved ones receive the maximum sum.
This is because when a policy is written in trust it is detached from your estate and therefore is not subject to IHT. Instead, you assign the rights of the policy over to a trustee/s to administer on your behalf, much like the executor of a Will.
What’s more, because the policy does not form part of your estate, your loved ones will not have to wait for probate to be granted before the proceeds are released, meaning a quicker pay out.
All major insurers can provide you will documentation enabling you to write you policy in trust, completely free of charge.
One word of caution, once a policy is written in trust it can be hard to change later; for example, if you get divorced or have more children. Therefore, you need to be sure on the details before committing or ensure you use a flexible trust which allows future amendments.
Take cover out whilst you are still young
Insurers calculate the cost of your monthly premiums based on the level of risk you pose. Therefore, the greater the risk of a claim, the higher the premium.
Unfortunately, as we age statistically, we are more likely to have health issues. As a result, your age is one of the most influential factors when it comes to the cost of life insurance. The older you are at the point of application, the higher your premium will be.
Therefore, if your budget allows it pays to take out life insurance as young as possible. If you can take out life cover in your 20s or early 30s you could lock in super-low premiums for many years to come. For example, a 25-year old non-smoker in good health could secure £200,000 of cover for around 20p a day.
Factor in any cover you receive through your employer
The cost of your premium is impacted by the level of cover you take out. The greater the cover amount, the more you will pay.
At this time of a cost-of-living crisis and high inflation many people are really feeling the pinch, and so any way you can save on your life insurance is a bonus. One effective way to save is to factor in any cover you receive through your employer, such as death in service benefit.
Death in service benefit is usually 3x or 4x your annual salary and therefore unlikely to cover all your financial needs. However, you could use this sum to offset the level of personal cover you require, helping lower your premium.
One thing you need to be aware of though is that employee based benefits will not follow you if you leave the company.
Compare quotes from different providers
As with all insurance policies the cost of life insurance can vary significantly between providers due to different underwriting criteria. Therefore, to unearth the right policy at the best price, it is imperative that you compare multiple quotes.
A life insurance policy term can last up to 40 years and so even a small saving each month could equate to thousands of pounds over the life of the policy. So, always take the time now to compare quotes.
But how best to compare quotes?
You could source quotes from each individual insurer and run a market comparison yourself. This option ensures that no provider, such as Direct Line who do not appear on comparison websites, is considered. However, this method can take time and be frustrating especially if you need to phone the insurer.
Another good option is to use an FCA-regulated broker, such as Reassured. A broker enables you to compare a wide range of quotes from the best life insurance providers, often free of charge. They can also help you to compare/benchmark different policy types (decreasing term, level term, whole of life, over 50s plan), as well as guide you through the application process and writing your policy in trust should you wish (see above).
Lastly you could also use a comparison website such as CompareTheMarket or GoCompare anytime of day or night. If you know the policy type you require and your cover amount then this could be a good option. However, if you require additional support through the application or have questions which need answering then a broker is a better option.
If the last few years have taught us anything it is that life can be very fragile, and you do not know what is around the corner.
Securing life insurance can provide reassuring peace of mind that if anything were to ever happen to you, your loved ones will be provisioned for.
If you have dependants who rely on you, why not seize the day, and make 2023 the year you secure cover. Then get on with enjoying yourself safe in the knowledge your loved ones are financially secure.
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