Life Insurance
Protect your family’s finance

It's a sobering statistic; nearly one child in 20 loses a parent before they've finished full time education. Level Term Life Assurance is the lowest cost way to protect your family's income if the worst happens, possibly cutting your costs by over 40%, often adding up to £1,000s.

• What is level term?
• How much cover's needed?
• How to pick a policy
• Best Buys: Cheapest Brokers
• Is it worth switching?
• Writing in trust / getting advice
• Other articles / discussion

Is your insurance on the level

What is level term life assurance?

The name gives it away. It's term assurance, as you only get a payout within a fixed term e.g. 18 years. It's level, because the payout you get doesn't vary, it's always at a set amount.

Level term assurance thus guarantees a lump sum payout upon death within a fixed time e.g. £150,000 if you die within the next 18 years. It's the one policy you hope won't pay out!

Don't confuse it with...

Decreasing term assurance bought to cover repayment mortgages, where the payout decreases over time; or whole of life insurance - an investment based policy mainly used for inheritance tax planning. There's a useful list of definitions here.

An unpleasant fact... why it's assurance not insurance

If you are wondering why it is life ‘assurance' not ‘insurance', that's because assurance is for something that is certain to happen, insurance is where there is only a risk of it happening..... and death is assured. Though some do call this ‘insurance' too as there's no guarantee you'll die within the term.

How much cover do you need?

The cover and ensuing cost depends on a range of factors. It's also worth noting prices can change daily, so if your comparing a range of companies its worth doing all at the same time.

• The higher the payout the more it costs.
  
  The payout should cover any outstanding debts and provide your dependants with a reasonable standard of living. Check whether your work place already offers you ‘death in service' benefit. If it does, deduct from the total cover you need.
  
  Cover may also be needed for a non-working spouse, especially when children are young, as if they died the main earner may need to stop working. A very rough rule of thumb for either parent is ten times the highest earner's income.



• The shorter the term the cheaper it is.
  
  A policy covering children should last until they finish full time education, to cover a partner it should last until the earner reaches pensionable age. Don't feel obliged to cover a round number of years e.g. policies may be for 17 years.



• The less risk you'll die, the cheaper.
  
  The amount paid increases with the likelihood of death within the term - age, health, being a smoker, having a risky occupation, can increase the price. So 98 year old, tobacco chewing racing drivers who like to go cageless shark diving, may stuggle to get a good deal, even after reading this.



• Couples can do it together or apart.
  
  Couples can go for either separate or joint policies which pay out on the first death. However a joint policy would only be suitable if you need to pay out the same amount for both partners. Even if a joint policy does look suitable, it's worth getting quotes for standalone policies anyway, as it's often cheaper.

Level term is important protection for those who have children or spouses who'd suffer financial loss if you died, but affordability also counts, so if the appropriate cover is too costly, get what you can afford.

Bonus for new non-smokers

The way the cost structure for level term insurance works, means there's a bright spark for those who've given up smoking. After a year without smoking you count as a ‘non-smoker' again. The policy costs substantially less for non-smokers so its worth going through the whole process all over again and you should find the price drops substantially.

What to do if you've already got mortgage life assurance

Many already have life insurance policies specifically designated to pay off your mortgage in case you die within that term - it's called Mortgage Term Assurance. Many mistakenly believe this is all the cover they need. Yet if you think about it, all it does is mean your home would be repaid, it wouldn't provide any income to live on.

If you have a mortgage assurance policy, then simply delete the mortgage debt from the ‘outstanding debts' you'd need to repay if you died when working out how much level term cover you need. However, do also note it may be cheaper to use a level term instead of a mortgage policy to cover both your home and family. More details in the Mortgage Life Insurance article.

How to pick a policy

While some may be worried that ‘cheaper isn't better' actually, with level term assurance, there's no investment element as the payout is fixed; and there's no argument over whether someone is dead so this is a truly simple policy in fact in most cases, (and do forgive the virtual shouting for necessary emphasis)...

"It's simply a case of the cheaper the better!"

The main things to make sure of are that the company is reputable, and as usual, the premiums (monthly payments) are fixed and not reviewable.

Use a life insurance broker, but pick carefully

The easy answer is use a broker that trawls through life insurers to find the lowest price policy for you. Most brokers make their money from commission paid by the policy providers. Yet a few, will rebate a proportion of this to you, making exactly the same policy substantially cheaper (commissions are huge), others simply keep it all themselves.

Does this logic apply to critical illness policies too?

I'm not a big fan of critical illness policies. Many believe they will "pay out if you get a serious illness and can't work". Yet that isn't true, critical illness policies pay out a lump sum if you get a specific critical illness as defined by the terms of the policy, which can often be changed; for example losing one leg isn't critical, but two legs is! So don't think "I'm covered for cancer", most policies only cover a limited range of cancers.

Picking a good critical illness policy would take a doctor and financial nerd combined; so I suggest you're better off getting the level term cover and an income protection policy - which does just that - protect your income from a range of eventualities.

The UK's Cheapest Policies

Life assurance prices change every day, therefore there’s no single ‘best-buy insurer’; yet there are ‘best buy brokers’. This may surprise you, as a broker’s job is to trawl through life insurers to find the lowest priced policy for you, so you may think they’ll all find the same policy…

Yet some brokers get HUGE commissions from policy providers when they flog you a policy. Thus the amount of the commission and their commercial relationships with insurers impact your cost. However, a few niche ‘execution only’ brokers give you the commission, and instead you just pay a small fee, and as such you get identical policies but at a much, much lower price.

However beware that the fact they’re ‘execution only’ means they just find you the price without giving any advice and do remember all quotes are based on a healthy person so your price may go up if you have any health issues. Always check the full terms of the policy meet your needs before you buy.

Having surveyed over 20 insurers for a range of quotes, there are three which are always competing to be cheapest; best practice is to use all three.

• Cavendish Online.
  
  This has been my top pick for over four years, and has consistently offered good prices during this time. It pioneered giving up all its commission in return for a one-off fee; £35 for online application or £45 on the phone and can make it over 50% cheaper than most full-commission brokers.
  
  It's website is a bit clumsy, but MoneySavers' feedback is almost universally good. It offers two quotes, the ‘fee' and ‘fee-free' option; always choose to pay the fee, the monthly saving eat up the cost of the fee in just a few months. The commission option is only worth considering if your premiums (monthly payments) are under £7 a month. Link: Cavendish Online



• MoneyWorld.
  
  This is a firm of independent financial advisers that provides life insurance for a flat fee of £25 and no commission, either online or on the phone. It’s been around a while but recently moved to the ‘one off fee’ practice and lowered its prices and is often the cheapest of the top three. Link: MoneyWorld
  
  
• Life Insurance Online.
  
  This a small broker that also charges a £35 fee and no commission. It’s out there to match Cavendish’s prices and seems to do it quite regularly. However I’ve less feedback on its service and reliability. Link: Life Insurance Online*

Any new cheaper brokers will be included in the free weekly email

Other brokers included in the comparison: Asda, Direct Life, Life Assure Online, Life Direct, Life Saver, Lifesearch, MoneyBackMortgages, Sainsburys, Tesco, The Idol, TQ Online, More Than, AA, Legal and General, Marks and Spencer, Post Office, Egg.

Is it worth getting quotes from Direct Sellers too?

All brokers cover the same main life assurers, but they don't include the direct sales policies from the likes of Tesco, Direct Line or Sainsbury. Yet their prices are consistently more expensive than the cheapest brokers, so whilst for belt and braces you could include them in your quotes, I've never yet heard of a case where its worth it.

Play providers off against each other

Many providers offer ‘price promises' to beat any other quote, yet their prices aren't competitive.

Tesco offers ‘apply for Tesco life assurance and get a cheaper life assurance policy elsewhere within three months and we'll give you 1000 Clubcard points' (worth £40 in clubcard deals). So apply, cancel the policy within Tesco's 30-day cooling off period, then grab a Cavendish policy and gain the points. Do cancel though as generally Tesco's policies are expensive.

Note: The offer is mentioned at the end of the ‘Why choose Tesco Life Insurance’ section and is separate to the £50 gift card which asks for a policy to be kept for six months or more.

Already got cover? Is it worth switching

If you have a level term policy, the above method should enable you to cut the cost. However if you've an existing policy you bought many years ago or have experienced health problems, the savings from buying a cheaper way may be cancelled out by the fact your risk level has increased.

If when you get a quote it shows you can save, all you need to do is set up the new cover and once you've got confirmation, end your existing policy; though a quick check of its terms and conditions first never goes amiss.

Writing in trust/getting advice

If you die the life assurance forms part of your estate. This could mean you're hit with a huge whack of inheritance tax. In many cases you can avoid this by writing the policy in trust. Do that and it pays out directly to your dependents, so it never becomes part of your estate, avoiding inheritance tax and speeding up the payout.

This is relatively easy to do. When you get most insurance policies they include the option (and papers) about writing in trust directly at no extra charge. Although do note that once a trust has been set up, it can be difficult to cancel, even if all your beneficiaries agree, so think carefully about who a policy is designed to go to.

Getting advice

It's important to understand that all the above winning brokers are ‘execution only'. This means they don't give you advice, they just find you the cheapest policy within the parameters you set.

If you have complicated circumstances, such as medical conditions or a complex trust issues, or really want a critical illness policy, it is worth considering getting advice on how to buy the policy, yet doing this means it will take some commission and you'll therefore pay more.

Make sure you ask for the advisory service if you want it, because some providers do execution policies as well. The biggest and most well known advisory broker is Lifesearch*, yet it's usually undercut by TQ online* and Life Assure Online*.

A 45 year old female non-smoker buying a £200,000 level term policy lasting 20 years would pay £25.26 a month to a typical full commission provider. That's £6,060 over the whole term. Cavendish online is £19.28, so even including its £35 fee, the total cost is reduced to £4,665 - a saving of £1,400.

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