Life insurance: Keeping cover in the recession
It is well known that life insurance is an essential financial product, particularly for those of us who have a family depending on our income.
The problem is the life insurance market is considered by many as a minefield and a very expensive one at that.
And in today's unstable economic climate forking out premiums for a policy can often take a back seat when families are struggling to pay the mortgage, do the weekly food shop and pay the bills.
It's a weighty responsibility for anyone to bear.
However, there are ways to save money on life insurance. And with a little bit of knowledge of the life insurance market, and a few hours research you can find good deals which suit you and your family and might even leave you a little extra cash to treat yourself.
The first step is to decide which type of policy you are looking for. There are many different kinds of life insurance. You will probably see references to whole-of-life insurance or critical illness cover in your search.
However, term assurance is the most affordable, practical and common. It comes in a variety of different forms, but they all work by paying out if you die during a specified period.
According to life insurance and protection specialist, Lifesearch, it is very important to choose the right type of cover.
At the more affordable end of the life insurance scale there is Level Term assurance, which also includes renewable term, convertible term and decreasing term policies.
These run for specified periods such as the duration of your mortgage or until your children become adults. A decreasing term policy, for example, works well for people with mortgages as it reduces as your loan is gradually paid off.
There are also slightly more expensive policies such as increasing term insurance. And you can also buy family income benefit which is paid to your dependants as a regular income.
Matt Morris, senior policy adviser for the Lifesearch, says: "There are also policies that run until you pass away, regardless of when this may be, so either do your research or speak to someone who can guide you through these options."
Lifesearch also urges people attempting to save money to opt for single life cover, as opposed to joint life cover.
According to Mr Morris, joint life cover used to be the more affordable choice, but this has changed.
He explained: "Buying two single policies potentially provides double the cover, doesn't leave a surviving partner without cover later in life and often only costs a few per cent more."
He urged couples to compare the options before buying, however.
Once you know what to buy, you need to decide where to buy it. And this is where the serious savvy saving techniques come into play.
The key is to shop around and get lots of quotes. It is really important to scour the market for the best deal and the further and wider you search the more likely you are to get a better price.
According Lifesearch, you should not rely on your bank or another tied source to provide the best price.
Mr Morris says: "High street mortgage lenders and supermarkets are usually tied to just one provider and can be very expensive.
"Make sure you speak to a company that is not tied to just one insurer and can advise you on the best policy for your own unique circumstances. Remember that no one insurance company can ever be competitive or suitable for everyone."
Many people choose comparison websites to get a quick snapshot of some of the products available.
Research carried out by price comparison website Confused.com found the average Brit spends £12.33 per month on life insurance. Annually they fork out £147.96 and over their lifetime a staggering £7,693.92 can be spent protecting themselves and their family.
However the website claims people could reduce these figures by comparing a number of deals.
Gareth Kloet, of Confused, says: "Many people now have less money so it makes sense to spend a few minutes on comparison websites to save money by finding the right financial products at the right price."
It is important, however, not to be lured into a life insurance deal just because the premiums are cheap. The experts behind another price comparison site Moneysupermarket urge you to look at policy coverage and extras within the cover to make sure you are getting the best value for money.
Once you have shopped for your policy you need to apply for it. Moneysupermarket advises people to be honest about personal information and medical histories because, while it might be tempting to try to reduce premiums, dishonesty might result in a claim being rejected.
Making lifestyle changes, such as giving up smoking, can also reduce premiums. However, most insurers will require a level of commitment before they will adjust premiums accordingly.
Emma Walker, head of protection at Moneysupermarket, says: "The potential difference in the cost of protection premiums is vast, but in order to be classed as a non-smoker and therefore qualify for life insurance premium savings, insurers insist on smokers have packed in for a full year."
Ms Walker explains a smoker who had given up on July 1st, 2007 would have been officially classed as non-smoker on July 1st, 2008. In the past year, therefore, they could have saved £227 on critical illness cover or £58 on a single life insurance policy.
The saving doesn't stop once you have purchased a policy. When replacing your life insurance plan, Moneysupermarket advises people to compare like for like because the premium might be cheaper but coverage might not be as comprehensive.
And it also advises policyholders to review their cover if they change jobs, have children, move house or change marital status, for example.
Lifesearch also encourages policyholders to put their policy into a trust. It is a move, the firm claims, which will help to reduce the inheritance tax bill, which has the potential to usurp £40,000 from every £100,000 of life insurance.
Matt Morris says: "A trust is a free and simple way to ensure the monies go to the right person quickly and, as any asset under trust is not considered part of your estate, upon death the payout is not taxable."
The good news is there really are a number of ways you can cut down your life insurance premiums both now and in the future.
And, to add the cherry on the cake, Mr Morris reckons premiums have fallen dramatically in the past six years.
The important thing to remember is that not having a policy could leave your family in more financial trouble in future.
Mr Morris added: "It is crucial to ensure you look into protection the family finances as soon as possible and life insurance is one of the most basic areas to consider."
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