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Best way to cut life cover costs?

Protection | Life Cover Helpful? 13

Asked by Fatenbread, submitted 29 June 2010.

Open Quote I'm in my early 30's and moving from a job that has always had life cover as part of my package to one that does not.

I'm looking at term assurance with decreasing cover, which will reduce in line with my mortgage, as this is the lion's share of the cover I require. The term I require cover for will be around 20 years, by which time my children will both have completed their education and my mortgage should be paid off.

However, my question is this: Am I better off getting this cover over (say) 5 years and reinsuring at the end of this period, or getting term cover over the full term I expect to require life assurance now?

Presumably I would have a lower monthly premium now with a five year term (as the likelihood of me dying before I'm 40 is considerably less than the likelihood of me dying before I'm 60), with higher premiums each time I reinsure, but over twenty years, would the differential between a single policy and four concurrent policies be significant (in the way buying two six-month car tax discs is significantly more expensive than renewing car tax annually)?

I would expect my salary and disposable income to increase over the term.

Finally, who are the best companies to go to for a cost effective policy, ideally one where I can go direct and the IFA's commission is saved / rebated to me.

Thanks again, I love your site.
End Quote

Answered by Justin on 29 June 2010

Glad you like site. The easiest way to answer your question is to look at some example term assurance quotes for the scenarios you’ve mentioned. To keep things simple I’ve assumed £100,000 level cover for a non-smoking male and listed a competitive premium (grabbed from a price comparison site).

Age 35: Cover for 5 years: £5 per month. Cover for 20 years = £5.75 per month.
Age 40: Cover for 5 years: £6.09 per month.
Age 45: Cover for 5 years: £7.31 per month.
Age 50: Cover for 5 years: £10.39 per month.

You’re right, opting for a shorter period of time is cheaper, although not by that much. The downsides are that costs will rise significantly as you get older and the risk of being unable to get cover in future if your health deteriorates for some reason.

With decreasing cover the difference in cost will be less than this example due to the level of cover falling in later years, but the principles remains the same.

Personally I’d opt for 20 years cover at the outset as it’s likely to prove more cost effective over the period, less hassle and avoids the risk of becoming uninsurable in future

Discount brokers generally waive up to half their commission to reduce term asurance premiums (rather than give cashback), although price comparison websites can sometimes give them a run for their money. To get a feel for the cheapest brokers take a look at our Buying Life Insurance guide where I compare several options.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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