The purpose of life insurance is to provide financial protection for your loved should anything happen to you. Despite this, according to leading insurer Legal & General, 50% of UK parents do not have life insurance cover. It is therefore very wise to have a good idea of 7 key factors which may impact the cost of premiums. Saving the good people of Norfolk money…
Age (the younger you are, the cheaper it is)
As you would expect, age is a hugely influential factor when it comes to the cost of life insurance premiums. Generally speaking, the younger you are when taking out cover, the cheaper the premium. The thought process being, you are statistically less likely to make a claim. A great way to secure the lowest rate is to take out a life policy whilst you are in your 20’s or early 30’s. Unfortunately, many people only think of getting cover in later life, as their circumstances change, (have children, take out a mortgage etc).
Health and lifestyle
The majority of life insurance policies are medically underwritten, (apart from over 50s plans). Insurers factor in things like your BMI, alcohol consumption, if you smoke and whether you exercise regularly when calculating premiums. Insurers simply need to cover their risk, therefore if you are overweight and live an unhealthy lifestyle, you are likely to pay more. In contrast, if you are a healthy weight and exercise regularly, your monthly premiums will be cheaper. If you have a poor medical history, perhaps had a heart attack or a stroke, or currently suffer from a medical condition you would be considered an impaired risk and thus your premiums will be higher. If you are in good health you may wish to carry out a medical exam, to reassure the insurer of your current wellbeing.
Smoking (this includes nicotine replacement products)
Due to the proven link between smoking and serious illnesses, such as cancer and heart disease, smokers statistically live shorter lives. As a result, smokers will pay more for their premiums, as a claim is more likely. In fact, it is not uncommon for smokers to pay as much as twice as much as non-smokers for comparable coverage. Insurers only classify you as a non-smoker after you have given up for 12 months minimum.This includes the use of nicotine replacement products such as e-cigarettes, patches and gum.
The cover amount
Generally speaking, the greater the level of protection, the higher your monthly premiums. Life insurance is all about enabling your loved ones to continue living the life they are accustomed to, even if you are no longer around to provide.The amount of cover you require commonly depends on how many dependents you have and your level of debt. For example, if you have 4 young children and a large mortgage, you will require significant protection in order to cover these expenses. Although it is important to make sure you cover all expenses, being over-protected could unnecessarily inflate your premiums.
Life Insurance Policy type
Which type of life insurance policy you choose will also influence the cost of your premium. For example, whole of life policies, which guarantee a pay out, will be more expensive than term-based premiums, which only pay out if you die during a set period of time. Also, whether you choose a guaranteed or reviewable premium can have an impact on the cost. Guaranteed premiums, as the name suggests, remain fixed throughout the policy term and initially can be more expensive than reviewable premiums. However, reviewable premiums are likely to increase in cost at regular intervals throughout the policy and in the long-term can be more expensive. Also, if you want additional protection, like critical illness cover, you will pay more for your premium. These policies will pay out both if you die, or if you become critically ill and are therefore unable to work.
Length of the policy term
The length of the policy term is also a very influential factor in the cost of your life insurance. Generally, long-term policies are likely to carry more expensive premiums, compared with a shorter policy, simply because statistically you are more likely to make a claim. It is about making sure you have the right length of term to protect your family. For example, you may require a 25-year term to run as long as your mortgage runs, ensuring your family are not burdened with property debt. Or until your children turn 21 and are likely to be financially independent, after university. Too shorter term could leave your family exposed, to longer term, and you may unnecessarily be paying over the odds.
Family medical history
If there is a history of severe hereditary illness in your immediate family, (biological parents or siblings), this is very likely to increase the cost of your premiums. An insurer will ask questions about your family history during the application process. Hereditary illnesses which could affect the cost of your premiums include type 2 diabetes, heart disease, stroke, Parkinson’s disease and some cancers. Usually, an insurer will only require information on your family medical history up to a certain age, for example, 60. Thereafter there is a common understanding that certain illnesses are statistically more likely.
There are a various of factors which will impact the cost of your life insurance.
If you want to save on the cost of your premium, you could:
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Take out a policy while you’re young
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Shop around or use a broker, to compare multiple quotes
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Don’t take out more protection than you need
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Choose an appropriate term length
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Lose weight, get fit, stop smoking.
What’s more, different insurers employ different underwriting processes, thus costs can vary. The best way to ensure you get the most cost-effective quotes is to shop around yourself or get a broker/comparison site to do the work on your behalf. The most important thing is to have life insurance protection in place.
