What is reduction of premium in life insurance?

In this article, we explain the different ways to reduce your life insurance premiums that you may not have considered. Life insurance that covers you for a term will only pay out if you die within the term so it makes sense to ensure that you're not paying more than you need to. We will show you how to understand how your life insurance premium is calculated and many ways to save money on life insurance.

Índice Show

Compare life insurance quotes from different insurance companies
Select the right amount of life cover
Reduce the term of the life insurance policy
Choose the right type of life insurance
Consider single policies rather than a joint policy
Improve your health
Check your employee benefits
How can I stop my life insurance premiums from increasing?
1. Don’t over insure yourself
2. Buy the right life insurance policy
3. Get Healthy
5. Shop around
Bonus Tip: Put your life insurance policy into trust

The premiums on a life insurance policy as well as other personal insurance policies such as critical illness cover and income protection insurance are set using a number of factors such as:

age
health
lifestyle
smoker status

These factors may result in your life insurance premiums being expensive and outside of your budget. But rather than just giving up, there are certain things you can do to reduce your life insurance premiums but do remember that the cheapest life insurance policy isn't always the best. Sometimes the differences between policies are hidden away in the terms and conditions which can be difficult to understand without the help of a life insurance expert on your side.

Compare life insurance quotes from different insurance companies

Each insurance company will have its own method of assessing the risk of the person whose life is to be insured. Certain medical conditions, hazardous pursuits or even jobs can make your life insurance monthly premium cost more than you could pay with an insurance company that will assess you more leniently. This can result in different premiums for the same cover so it pays to shop around and compare your life insurance by speaking to life insurance experts* who understand how each insurance company assesses your risk.

If you are arranging a mortgage, for instance, you do not have to take life insurance out with the company that your mortgage broker is tied to as that life insurance company may not be the best or cheapest for you and it is unlikely that your mortgage broker will tell you this. You can read more in our article, “Should you buy life insurance through a mortgage broker?”

Select the right amount of life cover

If you can accurately calculate the amount of life cover you require then this can help to keep the cost to a minimum. Take stock of your personal finances and consider if you want to cover your outstanding mortgage and debts like credit cards; replace a lost income; pay taxes such as inheritance tax against your estate or just cover funeral costs? Assigning priorities can also help you to work out which aspects of what you need are more important to you. The amount of life insurance you buy will affect how much you pay for it so if you can reduce your life insurance, your life insurance premiums can reduce. Our article ‘How much life insurance do I need‘ will help you to work out whether you have chosen an appropriate amount of life insurance for your particular needs.

Reduce the term of the life insurance policy

The longer the term of the policy the more expensive the premium will be. Maybe just insure for the remainder of your mortgage term or while your children are young, as any reduction in term will keep your premiums down.

Choose the right type of life insurance

The price for your life insurance, in large part, depends on the type of life insurance you select. Some types of life insurance are cheaper than others and may be suitable depending on your circumstances. An increasing policy will increase in cost each year so think carefully about whether you need this – could a level term assurance policy be sufficient? Consider buying a life insurance policy where the lump sum that is covered reduces during the term of the policy. This type of policy is typically used to cover a repayment mortgage where the death benefit reduces in line with the outstanding mortgage balance and is cheaper than a level term assurance policy. There are specific family life insurance policies that also reduce over time and can give you more life cover while your children are young, reducing as they get older and closer to being financially independent.

If you're able to pay your life insurance premium annually to try and save some money, enquire with your life insurance company as to whether it offers a discount on an annual premium.

Consider single policies rather than a joint policy

If you are looking to get life insurance for both you and your partner often a joint life insurance policy is used, however, this might not always be the best option. A joint life insurance policy pays out on the first death if this occurs within the term of the policy. This means that both partners are insured for the same amount which may not always be the best option. If, for instance, one partner has a lower income than the other it might make sense, from a cost viewpoint, to cover that partner for a lower amount. With two single life insurance policies, you will have two separate policies that will both pay out in the event of both partners dying within the term of the policy, not just when the first person dies as with a joint life insurance policy offering you better value for money.

When you obtain quotes for life insurance it always makes sense to get quotes for both single and joint-life insurance policies and compare the cost. Don't forget there is nothing stopping you and your partner from having life insurance policies with different insurance companies as don't assume one insurer will offer the best value for both of you.

Improve your health

When you apply for term life insurance you will be asked to complete a health and lifestyle questionnaire. If you smoke or are overweight your life insurance premiums are likely to be increased due to these factors. It follows therefore that if you quit smoking and lose weight your life insurance company may consider reducing your monthly premiums.

These changes do not happen overnight as companies will require you to be a non-smoker for a period of time (usually a minimum of 12 months). But if you can make these lifestyle changes you could then approach your current insurer or get a quote from others to see if you can reduce your life insurance premiums. Likewise, if you had health concerns when you applied for your life insurance that you've since recovered from, you may be able to shop around for cheaper life insurance.

Check your employee benefits

Many companies offer life insurance cover as part of their employee benefits, usually referred to as death in service benefits so make sure you are aware of what life insurance cover may be available without the need to pay for it. Typically the cover provided is a multiple of your annual salary and this can be a significant level of cover and may reduce the need for additional life cover. One word of warning, however, if you leave your current employment then your life cover will usually cease unless, of course, you can negotiate replacement life cover with your new employer.

How can I stop my life insurance premiums from increasing?

To stop your life insurance premiums from increasing, you'll need to address something called the ‘increasing option' within your life insurance policy. It can also be referred to as ‘index-linking'.

An increasing or index-linked option protects the value of your life insurance against inflation by increasing the sum insured each year. Your monthly payment will increase to reflect this too – mostly at a higher rate than your sum insured increases.

The increases are usually linked to the Retail Price Index (RPI), Consumer Price Index (CPI) or a flat rate that the insurance company decides.

When the inflation indices are low, your premium payment probably won't increase by more than a few per cent but in times of higher rates of inflation, you will find the increases become more significant.

To stop or pause the increases to your life insurance, simply get in touch with your life insurance provider and request this. Usually, you can decline an increase for up to three consecutive years before the insurer will remove the option from your life cover policy, making it a level term life insurance.

If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article – LifeSearch

Page 2

5 ways to slash your life insurance premiums

People often assume that life insurance is expensive but it can be low cost and there are ways you can make it even cheaper. In this article we provide tips on how to bring down the cost of your monthly life insurance premiums, including how you to guarantee you are buying the right life insurance policy for you as well as how to get up to £100 cashback. Read on to find out more.

1. Don’t over insure yourself

Check the amount you are insured for and also the length of your life insurance policy (known as the 'term'). Life insurance premiums are based on a number of factors but the two that make up the bulk of the cost are the sum insured and the length of the policy. By reducing the size of the sum insured and/or the length of the policy you can make a significant reduction to the cost. You may, for example, have paid off debt since you originally took out your policy or you may have built up more savings which means that you require a lower level of cover.

2. Buy the right life insurance policy

Is your current life insurance policy the right policy for you? There are many different types of life insurance and so it is worth checking your current policy to see if there is an alternative that may be cheaper. Decreasing term assurance is a policy that will decrease over time in line with your debts and is far cheaper than a level life insurance policy, where the sum insured remains the same. Joint policies can be cheaper too, so if you live with someone and have individual policies, it may be worth considering combining the cover. However, bear in mind that a joint policy will usually only pay out when the first person dies. If you need help to select the most appropriate life insurance policy, then you can read our article, "best and cheapest life insurance in the UK"

3. Get Healthy

Life insurance premiums are based on your health at the time of your application and so it is possible your health may have improved (or perhaps you can make lifestyle changes now that can bring your premium down in the future) since you took out the original policy. Have you given up smoking? Have you lost weight? Is your blood pressure now at a normal level? All of these things can significantly bring down your life insurance premium and it would be worth exploring whether you can now get the same life insurance policy cheaper.

It is not just your health that can impact your premiums, your lifestyle and even your hobbies can too, so think about the answers you gave when you took out the insurance and if your situation has changed, it may be worth getting a new quote.

4. Buy now

If you don’t currently have a life insurance policy (and you know that you should have one) then seek advice now from a life insurance specialist. Life insurance premiums take into account a number of factors, one of which is your age. The older you are, the higher your monthly premiums are likely to be as you are statistically more likely to die and therefore claim on the policy. If you are not sure whether you need life insurance you can read our article 'Do I need life insurance?'

5. Shop around

Life insurance is a competitive market and just like car insurance and utility bills you should shop around to get the best price. Don’t ever assume that the quote you receive is the cheapest or best life insurance quote on the market. We would recommend that you speak to an independent expert so that they can conduct a full search of the market. The advice they provide is free. We've personally vetted the service of an independent protection specialist who can give you advice on the best policy for your circumstances. Just fill in this short form* to get started and they can call you back at a time that is convenient for you. Plus, if you decide to take out a policy, you could earn up to £100 cashback.

Bonus Tip: Put your life insurance policy into trust

When you speak to an independent expert, ask about putting your policy into trust. A trust form ensures three things, it ensures that:

the beneficiaries avoid paying inheritance tax
you nominate who should receive the proceeds if the life insurance policy pays out
the proceeds are paid out swiftly by the life insurance company (without the need for probate)

Also, remember to review any trust when there are any changes to your circumstances (eg. divorce or marriage) to ensure it still fulfills your wishes.