Life insurance policy confuses you? You did not read the small print? And above all, you feel you are paying too much? Don’t worry, you are not the only one.
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So as long as we agree this policy is necessary, there are certain way on how to save on it - provided you do the homework. Here are the things you can do.
1. Consider how much cover you need Choose an ideal standard life insurance cover which pays any outstanding debts (outstanding loans, mortgage repayments, credit cards etc) and still provide your family with a decent income in case of death. A general rule is that life insurance policy should be 10 times the highest earner’s income. Another way to save money is by checking if your employer is intending to pay you death in service’ payments (usually 4 times your salary) and deduct the amount from the life insurance policy.
2. Take level term life insurance It is designed to pay the beneficiaries a fixed amount of money in case you die during the policy term. However, no money is paid in case the term has expired. This amount is guaranteed and it does not change during the policy’s term. The life insurance is famous to persons with mortgage interest since the amount owed remains constant during the term.
3. Take decreasing term insurance This life insurance is designed to pay the beneficiaries if you die during the policy’s term. The amount payable decreases with time and with term assurance. However, there is no cash-in. This life insurance is common to persons who are paying mortgages since the mortgage balance reduces over mortgage payment period. It’s cheaper for you if you choose a decreasing life insurance since you’re only covering what you need-paying off the mortgage.
4. Choose joint or single life insurance Insurance policies are designed to cover single life policy or joint life policy. Taking single life policy is cheaper though you need to weigh your personal needs first, while taking joint life policy covers you and your partner, protecting your family income in case one of you dies. Though joint life policy looks suitable, get quotes for standalone policies first, since you might get two cheaper life policy covers.
5. Consider critical illness This life policy is designed to cover illnesses hence adding benefits to your life. You are paid a lump sum after being diagnosed with critical illness like a heart attack, cancer, stroke or multiple sclerosis among others. Taking this life policy cover costs a fortune though you need to weigh the extra cost versus the payment in case you/your partner become sick. Choosing combination of critical illness policy and life insurance can save you more money. Check out which types of cancers your insurance company covers since not all types of cancers are covered by all insurance companies.
6. Consider going smoke free Taking a life insurance policy is cheaper for non-smokers. A non-smoker is someone who has not smoked cigarettes for the past 1 year. Insurance companies increase insurance premiums for cigarette smokers since they have a higher risk. Stop smoking and enjoy a cheaper life insurance policy.
7. Consider life insurance with savings Check whether you have life insurance with investments or savings i.e. an endowment. This amount can be deducted from the life insurance cover and pay less.
8. Take life policy in trust In case of your death, your life assurance becomes part of your estate which makes your estate liable for inheritance tax.
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Avoid this scenario by writing the life policy in trust so that your dependants are paid directly. Doing this makes sure your policy doesn’t become part of your estate, speeds up payment and avoids inheritance tax. However, most life policies have an option of writing in trust directly for free. Consider carefully about the person you wish to nominate in a trust since some policies do not allow changes in case you change your mind. If necessary, seek legal advice.
9. Take premium waiver It is designed to pay your premiums in case you are not able to work due to an illness during the policy’s term. However, the policy adds cost to your life insurance though you should weigh the benefits against the cost.