Nobody wants to pay more than they need for life insurance. It’s costly and can eat into both personal finances and company profits (if you provide life insurance as a staff perk).
The question, therefore, is how to get the costs of life insurance down and save money. You want decent cover, but you also want to ensure that you’re not paying any more than you need. Enriching yourself is fun; adding to the bank balance of the insurance company and their shareholders is not.
Check out the following methods for saving money on life insurance.
Don’t Buy Guaranteed Policies
In economics, there’s no such thing as a “free lunch.” What economists mean by this is that if something seems inexpensive, there’s probably a catch. Watching YouTube videos, for instance, is free, but you often have to sit through lots of adverts to get to the content that you want.
A guaranteed policy might seem like a good idea because they don’t ask any medical questions but, of course, that increases the insurer’s risk. The insurance company won’t take on that risk out of the kindness of their hearts, so they’ll push the cost onto you. If you don’t let the insurer ask questions about your health, they’ll assume you’re sick and charge a higher life insurance premium (because they’re more likely to payout).
The solution? Unless you’re on death’s door, don’t opt for guaranteed policies, either at a company or individual level. Go for a medical checkup and let your insurance company know that you’ve got a good few years left in you yet.
Buy Relevant Life Insurance
Companies often offer employees life insurance as a perk of working for them. Life insurance provides firms with an extra tool that they can use to attract talented employees (and retain them).
The go-to solution for large companies is group insurance policies. The company buys cover for everyone who works for it, mixing high-risk people with low-risk people to get a favourable rate. The problem with this approach, though, is that it relies on having a big staff in the first place. Smaller companies suffer because insurers know that there’s a higher risk of a lumpier payout if somebody gets sick.
Relevant life insurance is different. It works by covering the directors (or key people) and then paying out a fixed sum to staff on their death. It’s a bit like “key person” insurance.
The good thing about relevant life insurance is that when the insured person dies, beneficiaries get a tax-free payout (including family members). The reason for this is that the tax authorities don’t treat life insurance payouts as a benefit-in-kind. An employee or family member can receive a gigantic payment based on the terms of the original policy, and the authorities are powerless to take any money from it. So not only is relevant life insurance cheaper than many group policies, but it’s also way more tax-efficient.
Improve Your Health
Insurers want to know how likely it is that you’ll die at any given moment to price up how much you should pay for life cover. If you’re likely to die soon, then they’ll have to pay out a lump-sum after you having made fewer payments. It’s much less profitable for them to take on a sick person than a healthy one.
The good news is that you can take steps to improve your health in some circumstances. Adopting just five simple lifestyle behaviours can dramatically lower your risks of disease and improve your chances of surviving into old age. These include:
- Not smoking
- Drinking in moderation
- Maintaining a healthy weight
- Getting regular exercise
- Eating a healthy diet
It’s all straightforward stuff and things that you can do with ease, should you put your mind to it.
Don’t Buy Any More Cover Than You Need
If you offer life insurance to your staff or want it to protect your family, then it’s worth thinking about how much you need. The more cover you get, the more money you’ll pay today.
Remember, your employees probably won’t do a tremendous amount of investigation into the precise terms of your policy. It’s nice for them to have some life insurance so that their families can survive without their income, but it doesn’t have to be overly generous. You want to attract talented people, but you don’t want to bankrupt yourself in the process.
The same applies to individual life cover: if you want insurance for your family, think about how much you need so that your family can maintain their standard of living if you die.
