Can't escape life cover? Then kill the cost

New insurance providers are sounding the death knell for old, expensive policies, writes Sam Dunn
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The Independent Online

Life insurance isn't the easiest sell. After all, people pay out for a policy from which they'll never benefit. But it is a necessary evil, generating a cash lump sum on our death to cover the mortgage or give immediate financial security to family members.

Life insurance isn't the easiest sell. After all, people pay out for a policy from which they'll never benefit. But it is a necessary evil, generating a cash lump sum on our death to cover the mortgage or give immediate financial security to family members.

What isn't a necessary evil, however, is paying too much for the cover, especially now that the cost of policies is being driven down thanks to improved healthcare and healthier lifestyles, which mean we are living longer. But paying too much is precisely what many people are doing.

If you bought a simple life policy five years ago, you could be forking out almost £800 more than you need to over the lifetime of the policy, according to financial services research company Consumer Intelligence. The difference between the cheapest and most expensive providers can be as much as 49 per cent. Shopping around among the growing list of pro-viders for a more cost-effective policy could reduce the premiums you are currently paying by an average of nearly 25 per cent.

Competition is intensifying. The supermarkets Asda and J Sainsbury muscled into the life cover market last week, stacking their shelves with basic life policies, also known as "term" insurance, which last for set periods. Both Asda and Sainsbury's claim that many policyholders are likely to be overpaying on their cover and could save hundreds of pounds by switching.

While the cost of life insurance is falling, the amount of cover we need may well be rising as we take on bigger mortgages - another argument for getting the most competitive price. A 29-year-old female non-smoker seeking a basic £100,000 15-year policy would be charged, for example, £5.70 a month by Sainsbury's, £7.15 by M&S Money, or £9.06 by Scottish Widows. Even though Asda's policy is underwritten by Scottish Widows and is, in effect, the same, it costs just £5. Such a saving might seem modest but over the lifetime of a policy (say, 15 years) it would add up to £731.

"Lots of people have had their life insurance for a long time, and it's worth reviewing how much you pay," says Mike Naylor, senior researcher for Which?, the Consumers' Association magazine.

Care is needed, though, if you're considering switching to a new provider. If your circumstances have changed since you bought your original policy, you could face higher premiums, warns Ronnie Martin, director of protection at insurer Legal & General (L&G). "Some years on, your age could be a factor and you may now have health problems," he says.

In such cases, it could be cheaper to stick with your existing policy, since new insurers are likely to charge more if you have suffered a stroke or now have high blood pressure. An independent financial adviser (IFA) or broker can compare quotes for you, though this may not end up producing a better deal and you may have to pay for advice.

Alternatively, contact insurers directly for quotes, giving full details of your medical history. Your mortgage adviser should be a good place to start, or compare life products on the financial website moneysupermarket.com.

Term insurance is the most common type of policy, paying out to dependants if you die during the period of the cover. It comes in two forms: a "level" policy, which runs for the life of an interest-only mortgage; and a "decreasing" policy, which is usually bought for repayment mortgages and is cheaper because the amount you owe on your property is whittled away over time. Even so, many people with repayment mortgages prefer a "level" policy because it covers the full amount originally borrowed, and so leaves some spare cash if it pays out.

A popular life option is "family income benefit". The premiums are lower as your dependants receive cash monthly until the policy runs out, not a fixed lump sum.

Your age, gender (women live longer, so the cover is cheaper), medical history and whether or not you smoke will all be taken into account by the insurer when setting premiums. The amount and the length of time you are insured for also affect the price. Increasingly, people are looking for extra cover to protect their income if they suffer a stroke, say, or are diagnosed with a serious medical condition such as Alzheimer's. "Critical illness cover is frequently added - but check to see exactly which illnesses are included," says Mr Martin at L&G.

And remember that people without dependants don't need life insurance at all.

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