The main factors which affect the cost of life insurance are your age and state of health, so if you want to take out insurance in the immediate future there is not much you can do to change these components. However, there are a limited number of ways in which you can cut the cost of life insurance:
· Take advantage of competition in the market - One of the advantages of buying term insurance is that once you have decided how much cover and which optional extras you want, the deciding factor is the price. The advent of direct insurers has increased competition in the field, which in turn has made the premiums the cheapest they have been for years.
· Go for term extension - If the insurer offers you the option to extend the term of the policy while it is still running, this should be cheaper than taking out a new policy at the end of the term because premiums increase as you get older.
· Limit the term - If the premiums you would have to pay for the amount of life insurance you need are likely to overstretch your budget, consider buying a renewable policy, or a policy which lets you extend the term in future without giving fresh evidence of your state of health. You can save money now by paying for a policy with a shorter term than you may need, but which incorporates the option of increasing the term in future when money may be less tight.
· Don’t switch - If you have a serious health problems, it is likely to be cheaper to stick with the insurer you currently have.
· Take out a joint policy - It can be cheaper to take out a joint-life policy rather than two single policies if you and your partner need to be insured for roughly the same amount and this will be sufficient if you both die. You can arrange for a joint-life policy to pay out either to pay out initially on your death – a ‘first life’ arrangement – or after both of you have died: a ‘last survivor’ policy. For the purposes of protecting dependants, the first-life policy is usually the most suitable.
· Link your life insurance to your pension - If you are eligible to pay into a personal pension plan, you can use part of your contributions to provide term insurance for your dependants. The advantage of doing this is that you currently get tax relief at your highest rate on the premiums you pay (within certain limits). The disadvantage of pension-linked term insurance is that the amount you pay for life insurance reduces the amount you can pay into your pension.
· Don’t give in - If you have decided that term insurance offers adequate cover to protect your dependants, and you want a free choice in how you invest any spare cash you may have, don’t give in to pressure to buy investment-type life insurance.