When shopping to buy life insurance, the best way to save money on your cover and still get everything you need is to shop around to find a provider that has what you want at a reasonable price.
Life insurance is an insurance policy that will pay out a specified amount of money to a beneficiary at the time of your death and will help your loved ones to pay for your funeral expenses as well as have some money left over for their own needs. You should consider the different types of life insurance to make sure you have the coverage you need. The various types are:
Permanent life insurance
This type of life insurance has a cash value that is paid to your beneficiary at the time of your death and this cash value increases over the life of the policy. You can benefit from having this kind of cover while you are alive because you can draw off this value and invest it for your own needs.
Term life insurance
Term life insurance has the cheapest cover because it is for a specific length of time. Once that term runs out so does your life insurance, but you can renew the policy for a further term.
Whole life insurance
Whole life insurance has a specified value in a guaranteed benefit and the premiums stay the same for the life of the policy.
Universal life insurance
Universal life insurance has an investment associated with it. Part of the premiums you pay for the cover will go towards the insurance and part will go towards an investment through which you can earn money.
Once you decide what type of life insurance you want, there are ways you can save money in the amount of premiums you have to pay. Term life insurance has the lowest premiums because the pay out is not guaranteed.
You will not be able to purchase this type of policy if you have any serious health problems, such as heart disease or cancer because this increases the likelihood that you will die during the term. You will have to undergo an examination by a physician to prove that you are in good health. If you do not smoke, you will also receive a lower premium.
If you decide that you need a second life insurance policy, you can save money by getting a rider on your existing policy. This is an addition to your policy that will expand your coverage without affecting the cash value of the plan. The older you are the more you will have to pay for life insurance cover. The best advice is to take out a policy when you are young.
A person in their mid-twenties will pay a lot less for the same amount of coverage as well a person in their mid-fifties. When you buy life insurance when you are young, you have the option of locking in a level premium, which means the premium won’t increase as you age.
How do I save money on Life Insurance?
How does Life Insurance work?
Life insurance actuaries look an individuals age, sex, health and habits and decide when someone with that profile is most likely to die. They then consider how much cover the buyer wants to purchase and set the premiums accordingly.
For example, smokers are (on average) likely to die sooner than non-smokers. Insurance companies know this means they will probably have to pay out a little sooner whenever they insure a smoker, and therefore charge people who smoke a higher premium to reflect this. This principle forms the basis of all life insurance.
There are two main types of plan to choose from:
- Term Life Insurance
This is the cheapest option, and pays out only if the holder dies while the policy's fixed-length term is in force. If the holder survives until the end of the term, they get nothing back. People often time their insurance to run only until a big family commitment ‚ such as the children's education, had been cleared.
- Whole of Life Insurance
As the name suggests, these policies remain in force right through the buyers life. It follows that the insurance company will have to pay out in almost every case, and premiums are therefore higher than those charged on term life insurance plans. Some policies demand that premiums be paid all the way up to the holders death. Others become paid-up at a certain age, and waive premiums from that point onwards.
What Does The Cover Provide?
There are a number of different types of Term and Whole of Life Insurance plans on the market. The cover which is provided will depend on the type of plan taken out. The types of plans available are as follows:
Term Life Insurance
- Level Term
The plans potential pay out remains the same for the full term of the policy. - Decreasing Term
The level of cover gradually reduces over the policy term to match a reducing liability such as the amount left to repay on a mortgage loan. - Increasing Term
Cover offered and premiums paid gradually increase in line with inflation. Designed to ensure the amount of cover purchased remains realistic and is not eroded by the effects of inflation over time. - Renewable Term
Allows plan holders to extend their cover for a further term with no health check. - Convertible Term
Allows holders to swap their term cover for a whole of life or endowment policy with no health check. - Family Income Benefit
Pays the surviving family a regular income instead of a lump sum for the remaining term of the policy.
Whole of Life Insurance
The majority of whole of life insurance policies are unit linked which means that premiums are invested into a fund and the cost of the protection is deducted from the fund as it grows. When a plan is taken out there is a choice of 'Maximum' or 'Standard' basis.
Maximum basis gives a very high level of cover for the monthly premium. Whilst this level of cover will be guaranteed for 10 years it is very likely that there will have to be an increase in premiums after each of the regular reviews. These usually take place after 10 years then after every 5 years.
Standard basis gives a lower level of cover for the premium, but is more likely that this level of cover and premium will stay the same throughout the policyholders life.
Term Life Insurance vs Whole Life Insurance
Whether you’re simply considering purchasing a life insurance policy, or have already made the decision to purchase a life insurance policy, it’s important to know the difference between a term life insurance policy and a whole life insurance policy. Knowing these differences will help you choose the best life insurance policy for you.
The most recognizable difference between term life insurance policies and whole life insurance policies is the fact that a term life insurance policy will cover you for a certain number of years, whereas a whole life insurance policy will cover you for your entire life. If you’re only looking for life insurance coverage for a specific amount of time, a term life insurance is probably your best bet. However, if you wish to be insured for the rest of your life, you should purchase a whole life insurance policy.
Another difference between term life insurance policies and whole life insurance policies is that whole life insurance policies offer a tax-deferred accumulated cash value. This acts as an investment component. Some people are interested in the ability to invest using their life insurance policies, so they choose to purchase a whole life insurance policy. However, if you use other methods of investment, a term life insurance policy is probably the best for you.
A third difference between term life insurance policies and whole life insurance policies is the difference in price. Term life insurance policies are generally cheaper than whole life insurance policies; however, whole life insurance policies often offer fixed annual premiums, so you won’t have to worry about your rates increasing if your health begins to deteriorate. Most term life insurance companies will raise your premiums based on the current condition of your health, as well as your age.
So, when you begin your search for the perfect life insurance policy, take these differences into consideration and decide which type of policy is best for you.