As we enter a new year it is normal to evaluate and take stock. Often this means committing to a new fittest regime or reducing our alcohol intake.
However, as inflation sours and so many families experience their disposable income declining, it is also a great time to consider our financial future – especially if we have children who rely on us.
Life insurance provides a financial safety net, providing loved ones with a cash lump sum payout if anything were ever to happen to us. These proceeds are commonly used to clear the mortgage, meet rising living costs, cover funeral costs and/or provide an inheritance.
Therefore, if you have dependants who rely on your income securing life insurance protection is usually a great idea. However, all our budgets are being squeezed during this current cost of living crisis and so it is vital to secure the right policy, at the best price.
Below we run through the key life insurance considerations in 2023…
- Always compare multiple quotes
It may come as a surprise that the cost of monthly premiums can actually vary significantly between insurers due to the different underwriting criteria employed.
As a result, it is vital to compare a range of quotes to ensure you get the best available deal.
A life insurance term could last up to 40 years and therefore even a small saving each month could result in a significant sum over the life of the policy.
To compare quotes quickly and easily you could use a reputable comparison website or an FCA-regulated broker. If you need help choosing the right policy and support through the application process, a broker is usually the better option.
- Beware of the free welcome gift
We all enjoy a free welcome gift, and they can be enticing. In the life insurance sector, insurers often offer a free £100 Amazon or M&S gift card if you take out your policy direct from them.
However, as mentioned it is really important to compare multiple insurers to ensure you are getting the best available deal.
Whilst a gift card can seem very appealing in the short term, over the lifespan of a 20, 30 or even 40-year term its monetary value is likely to be insignificant compared to the potential saving enjoyed from securing the best quote.
So always compare the market and don’t be too influenced by the free welcome gift.
That said, if the insurers quote is highly competitive and they are offering a gift then even better!
Award-winning life insurance broker Reassured have created this helpful guide detailing the best life insurance with free gift offer which may be of interest.
- Consider writing your life insurance in trust
There is a way of ensuring your loved ones receive the most from your selfless life insurance investment (and its completely free).
By writing your life insurance in trust any future proceeds avoid forming part of your estate. This means that 40% inheritance tax is either avoided completely or minimised (depending on whether your estate exceeds the £325,000 threshold).
Essentially you sign over the rights of your policy to a trustee/s to administer on your behalf, (much like an executor of a Will).
Because the proceeds do not form part of your estate your family will also receive a faster payout because they will not have to wait for probate to be granted.
All major insurers will allow you to write your policy into trust and so it could be a good option. Please note, once a policy is written into trust it can be different to amend at a later date.
- Consider a joint life insurance policy
If your budget is really tight, then you may want to consider taking out a joint life insurance policy.
A joint policy covers two lives simultaneously and is usually between 20% – 30% cheaper compared with paying for two single policies.
Whilst this saving will be welcomed by many families who are on a budget, it is important to realise that a joint policy will only provide one pay out after which the policy will expire.
In contrast if you can afford two single policies if could provide two payouts and therefore double the coverage.
- Take time to calculate how much cover you need and for how long
The cost of life insurance is largely determined based on the level of risk you pose to the insurer. Therefore, the longer your term and the greater the payout sum, the higher your monthly premium.
As a result, it is important to consider how long you need cover to ensure you are not unnecessarily paying over the odds. Perhaps you need cover until your children are financially independent, or until the mortgage is paid off.
To establish how much cover you need (known as the sum assured) consider your remaining mortgage balance, your monthly family outgoings, whether you receive any life cover through your employer (like death in service) and cost childcare/education fees. Also factor in the potential impact of inflation on the value of a future payout.
Often, we only realise we need life insurance after the loss of a loved one, when it’s too late. Therefore, it is important to be proactive and lock in cover if budget allows.