How much life insurance do I need?

Want to save money on your life insurance?

Life insurance is seen by some as an unnecessary monthly outgoing, but for many, it's essential in securing the future financial stability of loved ones.

However, it doesn't have to be a significant monthly outgoing. There are a number of things YOU can do to save on life insurance, keeping your monthly premiums low.

When arranging your life insurance policy be smart and don't pay over the odds.

Don't take out too much cover

Generally speaking, the shorter the policy term, the cheaper the monthly premium.

Therefore, it's important to consider what you're looking to protect and ensure the term length is appropriate.

For example, you may want your life insurance term to align with your mortgage, securing what's probably your largest asset. Or perhaps until the children have left home and are financially independent.

A higher pay out sum, usually means paying higher premiums.

It's important to find the right balance between having enough cover so that your loved ones aren’t exposed, but not too much cover, so that the cost is unnecessarily high.

Think about how much you have left on your mortgage, the cost of family living costs and any personal debt you may have. Ideally, your policy pay out should cover all this.

Please note: Some employers offer group life insurance (or death in service). If you enjoy this employee benefit you may be able to trim the cost of your own life insurance accordingly. (Remember if you change your employer you could lose this benefit).

How much life insurance do you need?

Enter your financial commitments to understand the level of cover you require.

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£121,687 is the estimated average outstanding mortgage per household in the UK.

Our property is generally the largest financial commitment any of us will make.

Your life insurance should cover this significant debt should you no longer be around.

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According to Money Advice Service, full-time childcare in the UK now costs £242 a week.

The loss of a parent could result in the need for additional childcare whilst the surviving parent increases their hours to account for lost income.

Your life insurance cover should factor in this additional required outgoing.

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The average level of debt (minus a mortgage) in the UK is £15,385.

Factoring in any outstanding debts in your name when arranging life insurance ensures this burden is not passed to loved ones.

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You may wish to leave your loved ones an inheritance or lump sum gift upon your passing.

Factoring in the gift amount when arranging your cover will ensure the pay out amount will be sufficient to provide your loved ones with this selfless gesture.

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According to SunLife, the average cost of a UK funeral is now £4,417, whilst the total cost of dying is £9,493.

This is a 130% increase over the past 16 years and shows no signs of slowing down.

A significant cost which should be factored into the amount of life insurance you secure.

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If you are one of the 65% of the UK who are lucky enough to have savings, this could be used as protection if you were to pass away.

Any pay outs from existing life insurance policies and investments can also be used as financial protection for your loved ones if you were no longer around.

Factor this into your required cover amount.

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Your total cover estimate

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Let us find your best quote.

Live a healthier lifestyle

Your overall health directly affects the amount you pay, therefore, the healthier you are, the lower your monthly premium.

For example, being both overweight and a smoker significantly increases the cost of monthly premiums due to the associated health risks.

Therefore, losing weight or quitting smoking, can reduce the cost.

To be classed a non-smoker with regards to life insurance, you must not have smoked or used nicotine replacement products in the past 12 months.

Alcohol consumption is also taken into account when calculating your monthly premium, so cutting down on your intake can also have a positive effect.

Consider a joint life insurance policy

Taking out joint life insurance requires you to pay one monthly premium, instead of two.

As a result, it's usually cheaper than taking out two single policies - offering a significant saving over the entire policy term.

One thing to be wary of, however, is that joint life insurance only pays out once. Whereas two single policies offer two separate pay outs.

This means that the remaining partner is left either having to obtain a new policy whilst older (which is likely to bring with it increased premiums) or risk being uncovered.

Therefore, the suitability of joint life insurance is dependent on your individual circumstances and coverage you require.

Secure life insurance when young

As a general rule, the younger you are when you take out life insurance, the cheaper the premium.

This is due to the increased risk of health implications as you age.

Taking out life insurance in your 20s and early 30s is ideal as health risks are still considered relatively low.

This will allow you to lock in super-low monthly premiums, possibly for many many years.

Offering very affordable cover protection.

Use an FCA registered broker

The reality is, insurers do offer similar levels of cover but at very different prices.

To ensure you get the right policy, at the very best price, it’s best to shop around and compare multiple quotes.

However, this can be a time consuming, and often frustrating, process. You could use a comparison site, but remember they do not include all providers.

Using an FCA registered life insurance broker, like Reassured, can ensure you save time and secure the best deal.

(Our no-obligation service is completely FREE to use).

Complete our simple online form today and let us get to work searching the market on your behalf.

An endowment policy combines life insurance with a savings plan

When saving plans and life insurance are discussed, people are commonly referring to endowment policies.

Largely speaking this type of policy has been replaced by ISAs but it's still possible to put this type of investment in place, (although unlikely with the majority of mainstream insurers).

Each month you make payments and a certain percentage of this premium covers the cost of your life insurance, whilst the rest is invested.

The typical period for an endowment policy is 10 years+ and it's often used to save for a significant financial goal or to pay off an interest-only mortgage.

At the end of a set period, a guaranteed pay out will be made, although this may be less than the amount paid-in, dependant on the performance of your investment.

If you die during the term of the endowment policy, a lump sum pay out will be made taking into account the current state of your investment.

A minimum lump sum is usually guaranteed but the overall pay out sum is determined by the performance of your investment, which is dependant on market conditions.

Typically, you'll receive a bonus added to the value of your policy each year your policy is in place.

Whilst it's possible to access the funds before the end of the term, this is often not an easy process and there are usually high charges and penalties incurred.

What is the difference between an endowment policy and life insurance?

The key difference between an endowment policy and life insurance is when/if a pay out is made.

An endowment policy guarantees a pay out whether or not you outlive your cover, meaning the pay out could be received by yourself or your loved ones.

Life insurance, on the other hand, only pays out upon your passing, meaning the key benefit is to your loved ones only, as opposed to you as the policyholder.

If you outlive your life insurance, no pay out will be issued.

With regards to life insurance, the pay out amount is set in stone. Therefore, regardless of when a pay out is made, the sum assured remains guaranteed.

Whereas, the pay out amount from an endowment policy can fluctuate depending on the performance of the investment part of your policy.

If you pass away during an endowment policy, the pay out amount will combine the value of your life insurance and investment, but outliving your policy will result in a pay out amount consisting of your investment value only.

Determining whether or not you're best suited to an endowment policy or life insurance will depend on what it is you're looking to secure in terms of protection.

Endowment Policy Life Insurance
Is a pay out guaranteed? Yes No
Is pay out amount fixed? No Yes
Who benefits Policyholder/ Beneficiaries Beneficiaries only
What does pay out consist of Sum assured + Investment (upon death). Investment (if outlived) Sum assured only (upon death)

Can you still get endowment life insurance?

Generally speaking, this type of policy has been replaced by ISAs but it's still possible to put this type of investment in place, (although unlikely with the majority of mainstream insurers).

Unfortunately, at Reassured we currently don't arrange this type of protection.

However, if you determine life insurance is the correct option to meet your needs, we can compare quotes from the market leaders to secure the best deal.

Do I have to pay tax on an endowment pay out?

No. Outliving your endowment policy and collecting the investment value won't result in you paying tax on the pay out.

This is because tax has taken place during the investment process.

The one exception to this is early cash out.

As discussed, it's possible to cash in your endowment policy early (albeit difficult). In this instance, you'll be required to pay tax on the pay out sum if the policy has not yet reached 10 years or 3 quarters of its term, whichever occurs first.

Alternatively, your loved ones will be subject to inheritance tax on an endowment pay out if you pass away as the sum assured will be included within the value of your estate.

Is life insurance a savings plan?

Unfortunately, life insurance is not a savings plan in the traditional sense.

Paying into a life insurance policy won't result in a pay out to the policyholder, therefore, making it an ineffective means for saving money for future goals.

However, it can be seen as a means for saving money for your loved ones upon your passing.

A life insurance policy can pay out a sum of £200,000 or more; a sum most wouldn’t have the ability to provide their loved ones even if they saved during their lifetime.

Therefore, by securing life insurance cover, you can be seen as saving for the financial future of your loved ones after you're gone.

Arranging a life insurance savings plan for your loved ones

As discussed, life insurance is an ideal means for protecting the financial future for your loved ones if the worst were to happen to you.

The cost and cover can vary significantly between the best providers, making it essential to compare quotes.

At Reassured, we provide a fee-free service to carry this out of your behalf to secure you the best deal.

Simply get in touch today to make the most of our award-winning, FCA regulated brokerage service.

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