We would do anything to protect our family and pay whatever it takes to have the right level of insurance cover in place for them, to make sure they are adequately protected in the event of our death or suffering a serious illness.
Yet, we don’t want to pay any more than we need to, and my experience is that people are paying much more than they should for products they don’t need or understand.
So, to get value for money, I’m going to share with you some strategies which will help reduce the amount you need to spend on life cover each month .
When you first enquire about how much a policy will cost, you are given a number, but that doesn't mean, you are guaranteed this is the amount you will end up paying.
When you submit an application, it will go through an underwriting process and the provider will consider things like your height/weight ratio, smoking status, occupation, previous medical history and even your hobbies and pastimes.
So, your health plays a huge role in your premiums.
Your health and lifestyle, is an indicator as to how risky you are to insure which, is why life companies ask so many questions about it at proposal stage.
So, if you want to decrease your cost you need to
1. Lose weight
If a provider believes you are over-weight for your age and height, they may think your chances of developing for example diabetes, heart disease or high blood pressure are increased and as a result you will pay more.
2. Drink less
Drinking in excess, for what is considered normal will also increase the amount you pay, so cut back on the amount you consume each week.
3. Stop smoking
Smoking will increase the amount you pay by as much as 50% because it increases your mortality risk and an insurance company will charge you more to insure you.
4. Lower the term
The longer the policy in place the more you will pay. Choosing a term of 20 years over 30 means a life company has, to cover your life for 10 more years meaning you will pay more. If you lower the term by 10 years, on a policy for €200,000, a 35-year old female will pay 33% less in monthly premiums.
5. Lower the level of cover
The level of cover will also determine your monthly premium and if you feel your overall premium is too high, you can reduce the cost by lowering the sum assured.
The level of cover I believe you should have in place is linked to your monthly income. If you passed away, it is your income that needs to be replaced. But what income would be paid in the event of your death e.g. an employers’ pension, widow/widowers State pension, rental income etc. and what income would no longer be required if you passed away e.g. mortgage repayment is gone, the amount you spent on yourself, insurance premiums and what about the existing level of savings, existing and past pension funds that would be payable to your estate and or a death in service benefit paid by your employer? All, of these factors need to be considered and reviewed to determine whether you are over or under insured.
6. Have the correct policy in place
You really only need life assurance for a certain period of time, and once your children are financially independent and off the pay roll and you have paid down debt and saved for your retirement then there really isn’t any need for much life cover other than something that will cover funeral expenses. So, choose a term assurance policy which has an end date because it is much cheaper than the alternative which is a whole of life policy.
7. Use an independent adviser
Some people end up wasting their money because they don't have an independent financial adviser working on their behalf finding them the right level of cover, with the right provider at the cheapest possible price.
When you work with a tied agent or an adviser employed by a bank, you will only see the policies from the company they can only work for. They can't show you similar policies that cost less because they only work with one provider. You really need to work with an adviser who has the independence and freedom to give you quotes from multiple providers.
8. Get a policy when you are younger
The younger you are when you take out life cover, the less you will pay in monthly premiums. You may not think you need cover, but it could be a good investment of your money because a 30-year old will pay about 90% less for a €250,000 policy than a 40-year old will.
Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at firstname.lastname@example.org or www.harmonics.ie