Buying life insurance is never going to be an easy purchase as there are so many variables
Utimately, it boils down to the same set of information being used to provide you with a quote for the level and type of cover you need.
With the ease of online browsing and the uptrend of comparison websites, it’s never been easier to shop around for the best deal on any type of insurance. However, what many may be missing is the savings that can be had when you know where to look.
High street banks add a mark up to their policies to cover for the price of advice offered to consumers, in addition to the level of protection offered… although no matter where you buy from, you’re always protected due to the UK regulations across the insurance sector.
Buying via an insurance broker or independent advisor can work out cheaper. In particular, for independent advisors as they aren’t concerned with shareholders and corporate red tape, therefore, have more control over the mark ups they add, or perhaps forego mark-ups in favour of a flat fee service.
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The next option is to go direct to the insurer. Surprisingly, this option can be more expensive. An investigation by The Telegraph highlighted that Tesco sell Aviva products rebranded as Tesco Bank Policies, which costs more than buying through a broker, but surprisingly… “Aviva charges the most for its own products by a considerable margin”.
When Aviva was asked about their pricing position, the reason given for the price difference is that they are comfortable to charge more because some customers prefer the convenience of buying direct. So, there you have it, direct isn’t always cheaper.
The other option is to go online and to use a life insurance comparison website, these are becoming more and more popular as people become increasingly aware of the differences in price different providers offer.
The vast majority of mortgages come from high street lenders, such as Barclays, Nationwide and Yorkshire Building Society.
When you take out a mortgage, the topic of insurance comes up at some point. Lenders will insist you have insurance in place, but what they’re referring to is your buildings insurance. This is because they have a financial interest in your property whilst it’s co-owned and therefore, insist on insuring the property. Not your life. All the other insurance policies above and beyond that are entirely optional, although it is advisable to give some serious consideration to further insurance.
When you speak with a mortgage advisor, they will advise of the different types of life cover that would be suitable to your financial needs. The types of insurance products you’re likely to be discussing are detailed below.
Term life cover
This is the most common and the most affordable, because it’s directly tied to the term of your mortgage. Term cover will cover the term of the mortgage period, such as 25-years. These rarely have any cash in value. The policies are solely for financial protection and not for investment purposes.
Whole of Life Cover
This is more expensive and as the name suggests, it covers you for the whole of life. In other words, it lasts beyond the term of your mortgage.
Decreasing Term Cover
This is the cheapest form of life insurance. The idea behind taking this level of cover is simply to cover the mortgage in the event of the policy holders’ death. The sum paid out by insurers will decrease in line with the amount outstanding on the mortgage. It should be noted that the payout will decrease but your premiums will remain fixed.
The benefit of a decreasing cover is that in the event of your death, the payout will meet the outstanding balance of the mortgage. That’s all and that’s why it’s the cheapest policy available. If this is all your budget can stretch for in terms of life insurance, it’s still going to help financially for your family and give you peace of mind knowing that they won’t have a monthly mortgage payment to keep up or risk losing the family home.
Critical illness cover / mortgage protection insurance
When you agree to a mortgage, the next upsell-of-sorts from high street banks and brokers are mortgage protection cover. This covers you in the event that you can’t work and usually will pay your mortgage premiums for a set time, stated within the policy agreement, for example the first 12-months of being unemployed due to a critical illness such as cancer or a stroke.
Critical illness cover will do the exact same thing as what a lender calls mortgage protection cover, so you aren’t obligated to purchase from the same lender providing your mortgage. You can arrange critical illness cover from an alternative insurer at whatever sum you need covered for.
The price you’re quoted by any lender will include their mark-up, which can be cheaper or more expensive. For that reason, you’re best to shop around for alternative quotes as all insurers, intermediaries, and lenders will have different fees and pricing structures, each of which will impact the quote you receive.
The Best Way to Compare Insurance Quotes…
Since there’s four ways to buy insurance – online, bank/lender, broker/advisor, and direct – obtain quotes by using all three methods to ensure you get the best price. The same policies will be obtainable from all three sources. Find the best offer with the same level of cover.
When you’re purchasing life insurance as a means of financial protection to ensure your mortgage is paid, even just an increase of £1 per month on a 25-year term life insurance policy will add £300 to the cost of the policy over the term of the cover. The higher the monthly difference, the higher the cost is to your cover, all because lenders, advisors and insurers price the same level of cover differently.
Where you purchase insurance is just as important as the type of insurance you buy. The price differences can be significant so it’s worth taking your time to explore your options.