Level term life assurance is one of the cheapest ways to protect your family's income if the worst happens. About one child in 29 loses a parent before they've finished full-time education - but you can save �1,000s while still protecting them.
Life assurance premium prices have risen for for everyone because of a new tax on insurers, and even further for women, owing to the EU gender directive. Yet if you compare policies across the market, you can still find a good deal to suit you.
In this guide
Best buys - cheap life insurance
What is level term life assurance?
It's a fancy name, but the simplest type of life insurance around. In a nutshell...
It pays out a LEVEL amount to your dependants
if you die within a FIXED TERM
As you've no doubt spotted, there are two key terms:
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"Fixed term": You only get a payout if you die within the stated term, eg, 18 years.
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"Level": The payout you get doesn't vary, it's always at a set amount.
So, level term assurance guarantees a lump sum payout upon death within a fixed time, eg, �150,000 if you die within the next 18 years. It's the one policy you hope won't pay out!
Should I bother getting life insurance?
That depends on you. If you're a single person with no dependants, then you're far better off focusing on your own finances. For everyone else, ask yourself:
"What would happen financially to the people around me if I died?"
If the answer is there'd be little financial impact, then you probably don't need a policy. But if paying the bills, the mortgage, bringing up kids, food shopping and more would be a struggle, this is a cheap way to solve that.
Don't confuse with MORTGAGE TERM or WHOLE OF LIFE insurance
It's easy to confuse with other similar policies. So here's a quick list of things it isn't:
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Mortgage term assurance
This is bought to pay off your mortgage in case you die. It's also sometimes called 'decreasing term assurance' as the amount it pays out decreases as your mortgage decreases. For more on this, read the Mortgage Life Insurance guide. -
Whole-of-life insurance
This is an open-ended investment based policy mainly used for inheritance tax planning. It runs out when you die, rather than after a fixed time.
Why is it 'assurance', not 'insurance'?
If you are wondering why it's 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 call this "insurance" too, as there's no guarantee you'll die within the term.
Life assurance DOs and DONTs
If you've decided you do want life assurance, make sure you get the right amount of cover and the correct type of policy. We've put together the DOs and DON'Ts you need to heed.
DO carefully consider what you can pay in and need out ...
The amount paid out on your death should aim to pay off any outstanding debts (such as a mortgage) and provide your dependants with a reasonable standard of living. If your workplace gives you 'death in service' benefit, deduct it from the total cover you need.
A very rough rule of thumb for either parent is 10 times the highest earner's income. If one spouse dies, the other may need to stop working to care for young children.
However, the higher you set the payout, the more insurance will cost. You must balance the benefit versus the impact on your pocket now. If covering the full 'rule of thumb' amount is prohibitive, work out what you can afford to spend per month - eg, �10/month (MSE's Budget Planner should help) - then see how much cover that gets you.
To provide a regular income for your family, rather than a lump sum, the family income benefit (FIB) is an alternative - it gives an annual tax-free payment for a set period, rather than a one-off lump sum. Some best buy brokers below offer quotes for an FIB, but if you're not sure if it's for you, read the Getting Advice section.
DON'T assume joint cover is the same as two singles - get quotes for both
If you're a couple, a joint policy covering both people will usually be cheaper than buying two separate ones. However, that's because it provides a totally different level of protection.
Joint life insurance pays out on the first partner's death as standard, then never again. This can leave the surviving partner uninsured - not great if dependants still need protection.
Couples should get a quote for joint insurance, then do two separate quotes for individual cover, and compare the total cost. Once you know how much extra the joint protection will cost, you can work out whether it is that valuable for you.
DO live a healthier life, it makes things cheaper
Sadly you can't guarantee a long life, but the healthier you are now, the lower the price. Monthly premiums increase with the likelihood of death within the term. Age, health, being a smoker or having a risky occupation can increase the price.
So 98-year-old, tobacco-chewing racing drivers who like to go cageless shark diving may struggle to get a good deal, even after reading this. Pricing radically changes depending on who you are, and what you do.
If you're over 50 and have several health issues (or you don't want to disclose them) an over-50 life policy is an alternative. It won't require you to answer any health questions and there's guaranteed acceptance up to age 80 or 85. Yet as a trade-off, they are MUCH more expensive and you can't claim in the first year or two. Read Martin's blog: Axa Sun Life and over-50s plans
DO answer questions accurately - insurers' must ask what they need to know.
The Consumer Insurance Disclosure Act, introduced in April 2013, (see our news story) ensures insurers have to ask the questions they want answers to, instead of consumers having to volunteer what information they think may be relevant.
With this in mind, if a claim's rejected and you feel you haven't been "treated fairly" (a key phrase, quote it in correspondence), make a formal complaint. If that fails, you've a right to an independent decision from the free Financial Ombudsman. Full how-to in How To Make A Financial Complaint.
DO quit smoking - and requote.
Non-smokers pay a lot less cash than smokers, simply because they're a lot less likely to die during the term. To count as a 'non-smoker' you need to have been genuinely smoke-free for at least a year.
So one year after the date you quit, you should go through this process to get a new deal and you should save enormously. Don't be tempted to lie. If you died and it was discovered you had been a smoker, it could invalidate the policy. See other saving in the Stop Smoking MoneySaving guide.
DON'T over- or under-cover yourself
Many already have a life insurance policy designed to pay off your mortgage in case you die within that term - it's called mortgage term assurance. If you have one, then a level term policy won't have to cover your mortgage when it pays out, so subtract that from the payout.
Also bear in mind that you may have 'death in service' cover at your place of work. If you do, check what the payout may be and re-calculate the sum you'd need.
On the flip side, don't assume you only need mortgage life insurance. It won't provide income for your family to live on, nor cover other debts. However, it may be cheaper to use a level term instead of a mortgage policy to cover both your home and family - just get the quotes and see.
DO understand how you're protected if the insurer goes bust
The only payment you're likely to make to a broker will be any fees and charges, so there's little to be concerned about in terms of them going bust.
The bulk of your money will go straight to the insurance provider. These are covered by the same government-backed Financial Services Compensation Scheme (FSCS) as banks, meaning if they go into default, you're protected.
In the unlikely event it happened, the FSCS will try to find another provider to take over or issue a substitute policy. However, if you've ongoing claims, or need to claim before a new insurer is found, the FSCS should ensure you're covered. For more, see the Insurance section of the Savings Safety guide.
DON'T get sucked into critical illness policies without good advice
We're not big fans of critical illness policies, which sound like they'll pay out if you get any serious illness and can't work. That isn't true - most policies pay out a lump sum if you get specific illnesses as defined by the terms of the policy.
For example, losing one leg isn't critical, but losing two is! Don't think "I'm covered for cancer", as most policies only cover a limited range of cancers.
Picking a good critical or serious illness policy would take a doctor and a financial nerd combined. So one option is to get the level term cover and an income protection policy, which does just that - protects your income from a range of eventualities. If you want critical illness though, speak to an adviser.
DO consider writing in trust
If you die, the life insurance forms part of your estate, which could mean it gets hit with a huge whack of inheritance tax. In many cases, it's possible to avoid this by 'writing the policy in trust', as long as this is done at the time the policy is taken out.
Do this and the insurance pays out directly to your dependants, 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 at no extra charge. Although once a trust has been set up it is very difficult to cancel, even if all your beneficiaries agree, so think carefully about who a policy is designated to go to. If you decide to do this, you will most likely need to get advice.
DON'T think you're stuck with old, expensive insurance
If you already have a level term policy, this guide could help you cut the cost. However there's no guarantee you'll save. If your policy was bought years ago or you've had health problems, the savings from buying a cheaper way may be cancelled out by your increased risk level.
If a new quote shows you can save (ensure the cover is at the same level though), all you need to do is set up the new cover and once you've got confirmation, end your existing policy. A check of its terms and conditions first should never go amiss.
DO only get cover for as long as it's needed - and no longer
The most common reason to get life insurance is to provide for children, so aim for it to last until they no longer need to be reliant on you. For most, this is until they finish full-time education, whether that's 18 or 21. If the intention is to cover a partner, it should last until they reach pensionable age.
Don't feel obliged to cover a round number of years. Policies may be for 17 years rather than 15 or 20, if that's what's needed.
Best buys: Use a cheap broker
While some may be worried that cheaper isn't better, 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 most cases, provided you've disclosed adequately. So...
It's simply a case of the cheaper, the better!
Life insurance prices change every day, so there's no one best buy insurer, but there are best buy brokers. Brokers trawl life insurers to find the lowest priced policy for you, but they aren't all equal. Commercial relationships (who they include) and commission (how much they get paid) hugely impact what you pay.
You can get policies much cheaper than going direct by using 'execution only' brokers where you pay a small upfront fee, and in return they give you the commission. However, if you're not sure what you're doing, or have a complex situation, it's important to consider paying for advice - it may lead to a saving in the long run.
We surveyed 15 execution-only brokers for a range of quotes and here are the cheapest - check the top two then add the rest if you've time.
Quick broker warnings...
Read these before using an 'execution only' broker
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Is your premium GUARANTEED or REVIEWABLE? Check your monthly payment is guaranteed and not reviewable. 'Reviewable' policy prices can intermittently change at the insurer's discretion. With a 'guaranteed' contract, your repayments are fixed.
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'Execution only' means NO advice: 'Execution only' brokers just find you the cheapest price without giving any advice. If you'd like advice, to ensure you get the right cover (or have some comeback if it's not), read the Getting Advice section.
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Tell 'em about your health: All quotes are based on a healthy person and prices go up if you have any health issues. It's now insurers' responsibility to ask you what they need to know, but be upfront and honest about EVERYTHING or the cover is worthless.
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Always check ALL the T&Cs;: Make sure the policy meets your needs before you buy. Ask questions, questions, questions if it is not clear.
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Is the company reputable? If you haven't had feedback from elsewhere, ask in the MSE forum.
Top life insurance brokers
Take care to use only the links we've provided, as some more expensive companies pose on Google using very similar names.
Cavendish Online
Top pick on price for years, this site has consistently offered low quotes and pioneered giving up its commission in return for a one-off �35 fee.
Results include a 'fee' and 'fee-free' option. In the fee option, Cavendish Online rebates all of the commission it gets from the policy provider (the insurer). In the fee-free option, it keeps a portion of the commission and rebates the rest. The latter may be cheaper for lower payouts or short term policies.
Another thing to note; if your policy is declined, increased or deferred, due to health or lifestyle reasons, you'll either be offered another policy or a full refund of the fee.
Link: Cavendish Online
Moneyworld
This firm of independent financial advisers often matches Cavendish on price and has a lower fee of �25 - though Cavendish's long history of great feedback just edges it ahead.
It also offers 'fee' and 'fee-free' options by completing an online quotation form.
If for any reason you do not want to proceed, are declined or rated, you'll receive a full refund of the fee on request.
Link: Moneyworld
For absolute belt and braces, you can add a couple more of the smaller brokers, which charge around �30 and, depending on your circumstances, can rival the two above...
Money Minder | Commission Free Life Cover
However, they're newer to our guide, so we haven't been able to get as much feedback on service and reliability (please tell us in the Level Term Insurance forum discussion).
Others included in the comparison: Asda Life, Beagle Street, Brightlight Insurance, Confused.com, Direct Life, Life Assure Online, Life Search, PayingTooMuch.com, PruProtect, TheIdol.com, TQ Protect.
...PLUS check the ones they miss
There are a couple of life insurers that don't get looked at by online brokers. It's worth doing these separately to see if they can undercut your cheapest broker quote.
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Cheapest 'with advice' brokers
Getting advice costs more than 'execution only', in the form of a slightly increased premium each month (which goes as commission to the broker). However, while �2-10/month extra might not seem very much, over a 20-year term you'll be paying a lot for advice.
This could be worth it though, particularly for peace of mind if you have complicated circumstances, such as medical conditions, 'in trust' issues, want a waiver of premium (where you stop making monthly payments if you become seriously ill or disabled) or are after a critical illness, income protection policy or family income benefit.
Get quotes, then compare to the execution-only above. If you are happy paying that amount extra (work it out over the whole term) for advice, then go for it.
Cheapest advice
This is always a difficult one as, of course, if you're getting advice then you'll want it to be as good as possible. So you have to decide whether cheapest is best for yourself. There are two choices here:
- Online? Use a 'broker with advice'
Some brokers will give advice too, and just charge a higher premium. Giving life insurance advice is a regulated activity which means brokers have to meet certain standards set by the regulator, the FCA, and you can complain if things go wrong.
The biggest and most well-known brokers are Lifesearch and Cavendish Online, yet we also received good 'advised' quotes in the survey from MoneyMinder, TQ Protect and Life Assure Online*.
Anyone giving advice also needs to achieve Competent Adviser Status by taking FCA-approved exams. Ask your broker what exams they've taken if you want to check their qualifications. You can also check if they're registered with the FCA by doing an individuals search.
- Face to face? Use an IFA
Independent Financial Advisers cover life insurance, among other products, and may be able to see where it fits in with your other protection and wider money issues - and they will meet face-to-face.
They are regulated and must pass exams on more subjects than brokers, though the costs vary on how you agree the fee with the IFA. For more and how to find an adviser, see the IFA guide. You can also check the FCA register by doing an individuals search.
Saving �1,000s vs going direct
A 45 year old non-smoker buying a �200,000 level term policy lasting 20 years would pay �34 direct to an insurer, �25 a month to a typical full commission provider but only �18 via the execution-only route - saving �2,600 over 20 years (but you've no comeback).
Direct from big name insurer |
Full commission provider |
Discount
broker |
Savings over full term |
||||
Monthly |
Full term |
Monthly |
Full term |
Monthly |
Full term |
||
30-year-old smoker | �19.50 |
�4,680 |
�14.50 |
�3,480 |
�10.75 |
�2,575 |
�2,105 |
30-year-old non-smoker | �13 |
�3,070 |
�10 |
�2,400 |
�7 |
�1,660 |
�1,410 |
45-year-old non-smoker | �34 |
�8,160 |
�25 |
�6,000 |
�18 |
�3,670 |
�2,590 |
45-year-old smoker | �70 |
�16,800 |
�53 |
�12,720 |
�40 |
�9,860 |
�6,940 |
Joint 2 x 35 smokers | �46 |
�11,040 |
�36 |
�8,640 |
�27 |
�6,480 |
�4,560 |
(A) Assumes person in good health, age given is age next birthday. Prices as at April 2013 |