Quantcast
Menu
Save, make, understand money

How to

How to reduce your life insurance premium

Kit Klarenberg
Written By:
Kit Klarenberg
Posted:
Updated:
02/11/2015

Life insurance premiums vary from policy holder to policy holder, and are calculated according to a number of different metrics.

In some instances, these metrics can be out of your control. For example, the older you are, the more expensive a life insurance policy will be (historically, policies were often cheaper for women too, although a 2012 EU directive banned discrimination in this regard).

However, there are a number of ways you can lower the cost of life insurance.

Here are three.

Apply early

The point of your life when you decide to take out a life insurance policy has significant implications on cost.  Age and policy duration are the two most important factors influencing the cost of life insurance.

“The younger someone is, the healthier they generally are, and the longer they’re expected to live. As a result, premiums will be lower,” says Richard Sadler, head of retail protection proposition development at Zurich Life UK.

While this means life insurance gets more expensive the older you get, applying early could allow you to capitalise on lower rates for the long-term by taking out a ‘level premium’ policy.

“These policies allow the holder to ‘lock in’ a premium, for a specific time period, perhaps as long as 20 years,” Sadler explains.

Matthew Gledhill, managing director of insurer Beagle Street, believes consumers should secure life insurance cover as soon as they experience “a major life moment”.

“This could be when you buy your first home, marry or move in with your partner, have children or financial dependents of any kind, and so on,” he says.

Cover appropriately

Choosing a life insurance policy isn’t a simple matter of comparing prices, it’s a question of determining how much life insurance you require. Unfortunately, this can be an inexact discipline, and as a result policy overload is common.

“It’s basic arithmetic – the more cover you have, the higher your premium,” says Addy Frederick of LV=.

As a result, it’s important to ensure that you are only covered for essentials. Frederick says that holders could make big savings simply by reducing the amount of cover they have, and removing all non-essential cover.

Gledhill recommends using a life insurance cover calculator. Click here to view an example from LV=.

“Working out how much cover you actually need to protect yourself and your family now is important – but it’s also important to work out how much you’ll require in the future,” he says.

“You should recalculate every time your policy is up for renewal. That way, you’ll never pay more than you need to.”

The amount of insurance you need will vary depending on your financial situation, but common considerations are how much financial impact your death would cause to your family, whether your partner would need to/could continue working, how much debt you would leave behind, what assets you hold (a home, for instance) and what would happen to them.

Naturally, the sums involved in these considerations will change over time. As a result, it’s important to regularly update a policy in line with changing circumstances. This logic applies to both internal and external realities. In the case of the former, if debts decrease or increase over time, or your children become financially independent, this could mean you require less cover. In the case of the latter, economic factors such as recession and inflation may necessitate an update.

Live healthily

While it may seem obvious, health plays a pivotal role in determining how much a life insurance policy costs. Some pre-existing conditions may be incurable, and will inflate premiums but improving your health via exercise and dumping harmful habits can lower them.

Smoking cigarettes, for instance, is a major factor. Sadler notes that being a smoker can double a policy’s cost.

As a result, it is highly advisable that applicants quit as smoking is virtually impossible to hide from insurers. Life insurance providers oblige applicants to undergo medical exams upon application, and again when their policy is up for renewal. Among other things, these tests determine the presence of nicotine in the body. Even those who don’t smoke cigarettes, but chew tobacco or ‘vape’ electronic substitutes, incur smoker rates.

Different providers employ different definitions and requirements in respect of smoking. For instance, some life insurers only classify those who’ve never smoked as non-smokers while others consider applicants nicotine free when they haven’t smoked for a certain period.

“This could be anything from six months to several years,” notes Frederick.

“However, most providers permit policy holders on smoker rates to reapply for their policy at a standard rate once that period has elapsed.”

The same principle applies to other health factors, such as weight. Frederick states that insurers base their weight considerations on Body Mass Index (BMI) – a measure of body fat based on height and weight – meaning those who live healthily but are slightly overweight for their size will be quoted higher rates. Nonetheless, losing weight over time can reduce costs.

“Even those with pre-existing medical conditions can reduce their premium over time by consistently demonstrating a commitment to improving fitness and acting responsibly in respect of their wellbeing,” says Sadler.

[article_related_posts]


Share: