Life Insurance - Money saving Top Tips
More and more people are buying life insurance online and the
numbers seem to be doubling every two years. The reasons are
clear. Prices are lower on the Internet and life insurance is
fundamentally a simple insurance product.
Despite the underlying simplicity of life insurance, most web
sites channel their online clients through a telephone based
help and advice service manned by experienced personnel. They
represent your safety net so if a little technical knowledge is
called for, help is at hand.
But it's always a good idea to have a few Top Tips in your back
pocket when you're shopping online for life insurance. They'll
help you ask the right questions and find the best policy.
1. Always have your Life Insurance policy "Written in Trust".
This means that in the event of a claim, the money goes directly
and immediately to the person(s) you nominate when you first
take the policy out. It also avoids all possibility of your
estate having to pay Inheritance Tax on the proceeds of your
policy and that could represent a 40% tax saving !
All you have to do is tell the online brokerage organising your
policy that you want your policy "Written in Trust" and the
names of the people who the life insurance company pay in the
event of a claim. They will then sort it all out for you. The
extra good news is that this service is invariably free of
charge. So it's a win win situation and there aren't many of
those around these days !
2. In the early years a Reviewable Life Insurance Policy will be
cheaper but a Guaranteed Policy will work out a better buy in
the longer term.
With a "Guaranteed Policy" the insurance company guarantees
never to increase your policy's premium.
With a "Reviewable Policy" you agree that your insurance company
can review the cost of your policy at regular intervals. But
don't be kidded - in our experience a "review" is just another
word for a price increase. After all, who's ever heard of an
insurance company passing up a chance to charge you more! The
review intervals are usually between 2 to 5 years but this does
vary between insurance companies. You will find the details of
the review intervals on the documents sent to you before you
accept the insurance - these are called The Key Features
Documents.
So, comparing otherwise like for like policies, in the early
years the premiums for a "Reviewable Policy" will undoubtedly be
lower than the premiums for a "Guaranteed Policy". Thereafter,
the premiums for a Reviewable Policy increase eventually
catching up with and overtaking, the premium for a "Guaranteed
Policy".
In our experience, you can expect the monthly premiums for a
Reviewable Policy to exceed those of a Guaranteed policy in
about 7 to 10 years and then within the following 10 years, more
than double again. If your budget is currently tight then by all
means choose a Reviewable Policy - after all your salary may
increase in coming years and ease the strain. On the other hand,
if the premiums for a Guaranteed Policy are affordable, we think
they represent your best buy.
A footnote. Many insurance companies have stopped offering
"Guaranteed" rates for standalone critical illness insurance
policies. This because they have experienced much higher claim
rates than they initially expected. However, you may still find
a Guaranteed life insurance policy that also provides critical
illness cover. As we have explained, "Guaranteed" rates are
especially good value and if you can get a quote for a
Guaranteed life policy that includes critical illness cover, you
may have a real bargain.
3. Thinking about a Joint Life Insurance Policy?
A Joint Life Insurance policy is usually written on a first
death basis. This means that the policy will pay out on the
death of the first policyholder, subject to the policy being in
force at the time. This leaves the second person uninsured and
older. Older people can struggle to get life insurance at an
affordable premium, so rather than a Joint Policy consider
taking out separate policies now. Overall it will work out a
little dearer - but you get twice the cover and double the peace
of mind.
4. Taking out a Life Insurance Policy? Now would be an ideal
time to include Critical Illness cover.
Are you likely to need Critical Illness Insurance in the future?
Yes? Then consider adding it now to the life insurance policy
you're arranging. Why? There are three reasons.
Firstly, a Life Insurance policy combined with Critical Illness
cover will work out significantly cheaper than buying two
separate policies. Secondly, as we have already explained in the
footnote to Tip 2, you may be able to buy a combined Life and
Critical Illness policy with a guaranteed premium. That could be
a real bargain. Finally, premiums for critical illness cover
increase rapidly as you get older - so the sooner you take it
out, the cheaper it will be.
5. Don't confuse Terminal Illness cover with Critical Illness
cover.
There's world of difference between Terminal Illness and
Critical Illness cover so it's important to understand the
difference.
Terminal Illness cover pays out the insured lump sum if a
Medical Doctor diagnoses you with an illness from which the
Doctor expects you to die within 12 months. Most good life
policies automatically include Terminal Illness cover at no
extra cost. It's basically an early, and welcome policy payout.
A Critical Illness policy pays out the insured lump sum if you
are diagnosed with one of a wide range chronic illness and there
is no life expectancy criteria. Indeed, with many of the insured
illnesses you could expect to survive for many years. For
example: certain cancers, heart disease, stroke, multiple
sclerosis, loss of speech, sight or hearing, onset of Parkinsons
or Alzheimers disease, third degree burns etc. Say you were an
engineer aged 40 and you lost your sight. A Critical Illness
policy would pay out immediately and that money could well be
vital in helping you and your family through many difficult
financial years ahead. If you just had Terminal Illness cover
there'd be no chance of a payout.
So as you can see, Critical Illness cover is far more
comprehensive than simple Terminal Illness cover and for that
reason critical illness cover always costs you extra.