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Saving money on life insurance; making sure you get the right life insurance policy

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If you don’t have any debts with your partner and don’t have children (or they’re grown up and don’t depend on you financially), you can save money by not buying life insurance. But if you do have a joint mortgage or other debts, you probably do need some life insurance. There are different types of life insurance and some types of policy are more expensive than others. Find out more.

What is life insurance?

Although it’s called ‘life insurance’ it’s designed so that it only pays out when you die. There are several different types of policy:

  • Term assurance. This is the cheapest type of life insurance because it only lasts for a fixed term. It’s often sold when someone takes out a joint mortgage although it can also be used to insure maintenance or child support payments or to cover school fees.
  • Whole of life insurance. This policy will pay out, no matter when you die.

SAVVY TIP: Financial companies use terms like insurance and assurance interchangably when it comes to life insurance policies but they both mean the same thing.

Term assurance

If you’re buying term assurance to cover a repayment mortgage, where you pay off some of the original amount you borrowed every year, you can save money by buying what’s called ‘decreasing term assurance’, but if you have an interest-only mortgage, it’s not a good idea.

There are two types of life insurance policies that run for a set term:

  • Decreasing term assurance. This is designed to fall in line with your mortgage balance if you have a repayment mortgage. Although it’s cheaper at the outset than level term assurance, your premiums won’t fall as your mortgage is repaid.
  • Level term assurance. This policy will pay out the same amount, no matter when you die within the term. It’s useful if you have an interest-only mortgage, where the amount you owe will not change until the end of the mortgage term. It’s also a good option if you want to make sure you can pay costs such as school fees should your husband or partner die.

SAVVY TIP: Many couples who take out a joint mortgage also take out a joint life insurance policy. However, it’s often better to take out two separate policies. For a start, if you were to divorce or break up you cannot divide a joint life insurance policy in two. One of you would need to take out a new policy. Secondly, a joint policy only pays out once, so if your husband or partner was to die during the term of the policy, you’d be left with no life insurance.

Family income benefit

Most people think of life insurance as a policy that pays out a lump sum, but it doesn’t have to. Family income benefit will pay out a tax-free income to your husband, partner and/or children every month and because it pays a specific amount every month, rather than a lump sum, it’s much cheaper. It’s useful if you want to insure your salary or provide enough money to pay for childcare etc. should one parent die.

SAVVY TIP: If you’re divorced or separated and receiving child support or maintenance payments, you can take out a life insurance policy in case your husband or partner dies. There’s lots of information about this on the Money Advice Service website section on divorce and separation.

When you might not need life insurance

If your employer provides life insurance as a perk of the job, you may not need to buy any separately. Work-based life insurance is called death in service benefit and many companies offer it to employees for the benefit of their husband or wife, civil partner or dependants. It’s often twice, four times or ten times your salary but will only paid out if die while you’re still employed by the company.

SAVVY TIP: Check your company website or ask your HR department if you’re not sure how much life insurance you and your husband or civil partner might have through work.

Useful links:
Lifesearch are brokers who really know the market well.

Related articles:

Understanding the inheritance tax allowance

Critical illness insurance; how to find the right policy

What are your rights if you live with your partner?

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