Don't let your financial health go up in smoke

You can make great savings on life insurance by not smoking, says Helen Monks
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The Independent Online

Finding it tough if you gave up cigarettes on National No Smoking Day on Wednesday? If so, take comfort from how much money you're saving. Not only are you no longer spending £5 on each packet of 20, but by giving up you'll soon be entitled to cheaper insurance.

That's crucial when it comes to life and critical illness insurance. Brokers warn that after a decade of falling prices, premiums could rise by as much as 10 per cent this year.

The independent adviser LifeSearch says factors that in previous years contributed to lower premiums, such as fewer than expected numbers of claims relating to HIV and Aids, are running out of steam. Kevin Carr, a senior technical adviser at LifeSearch, says: "Few things become cheaper indefinitely and life cover premiums have hit the bottom."

The cost of critical illness cover, which gives you a lump sum pay-out if you are diagnosed with certain serious conditions, has already shot up, with some premiums doubling last year. To keep your costs down, start by thinking carefully about what kind of protection you need. Nick Bamford, managing director at the independent financial adviser Informed Choice, says: "Ask yourself: 'What risks am I really concerned about?'"

If you have dependents, life cover, which pays out a lump sum if you die, is likely to be a priority, particularly if you are the main breadwinner. Term insurance is the least expensive sort of life cover and guarantees to pay out if you die within a given time, compared with other life insurance policies, which have no set term and pay whenever you die.

Premiums for men tend to be higher, because on average they do not live as long as women. Premiums for smokers are also more expensive because of their impaired life expectancy compared with non-smokers.

Once you have given up smoking for a full year, you can make big savings. For example, with More Than, a 30-year-old male smoker might pay £16 a month for £150,000 of term life cover over 25 years, against £11 for a non-smoker.

To find the best deal, get as many quotes as you can from a variety of providers, including banks, online brokers and supermarket providers. If you have had cover with one insurer for some years, get quotes from rival providers, to check if savings are available.

Also consider critical illness insurance. Lifesearch says that before the age of 65 you are six times more likely to get a serious illness, such as cancer, heart attack or stroke, than you are to die.

Critical illness insurance pays out a lump sum if you are a victim of a grave condition, but check cover carefully. In 2003, insurers adopted new rules set by the Association of British Insurers that tightened the conditions under which policyholders could claim. The changes mean that policies won't cover conditions such as non-invasive skin cancers and less advanced cases of prostate cancer, and there are also more restrictive conditions for heart attacks.

Your policy ought to cover seven core conditions: cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke, and it should also pay out if a policyholder becomes permanently disabled as a result of injury or illness.

If you are single, with no dependents and a mortgage to keep up, protection such as critical illness is more likely to meet your needs than life insurance. But premiums are expected to continue to rise as medical technology develops.

One protection against rising premiums is to look for a policy that offers guaranteed prices for as long as you have the cover. While fixed premiums are typically higher to begin with, they could prove much cheaper in the long run.

Finally, if critical illness is too expensive, one alternative is to take out income protection cover. It provides a monthly income if you cannot work because of illness or an accident. This covers less serious illnesses, which can also keep you off work for a long time, such as a bad back or stress.

However, before you buy any cover at all, check what insurance you already have in place through your employer. Many offer a range of health and life insurance benefits.

'Kicking cigarettes halved my payments'

Government services worker Kevin Haresign nearly halved the cost of his joint term assurance policy for himself and his company director partner Sally by giving up smoking. Kevin, 41, is based in Surrey, and quit smoking in October 2003.

The following April he bought a two-year joint life term assurance policy but, because he had not given up for a full year, he was still forced to pay a smoker's loading on the policy, which cost about £89 a month.

In November last year, 12 months after quitting, he moved his policy to Legal & General, and cut costs from £89 to £46, a month.

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