Discover How A Life Insurance Savings Plan Works In 2024

Elaine Brookes Steve Case

Author: Steve Case - Insurance Expert

Reviewed & Fact Checked By: Elaine Brookes

Updated: 8th December 2023

Life insurance savings plan

Often confused as the same thing, a life insurance policy and life insurance savings plan are actually two distinct products.

Although they both hail from the same financial planning ballpark, there are significant differences.

Nevertheless, the main motivation for entering into either one might be described as the same: comforting peace of mind for you and your cherished ones

We shall briefly examine the features, benefits, and primary reasons for taking out a life insurance savings plan.

Before we dive into that, let’s clarify how life insurance savings plans differ from regular life insurance policies.

It is important, after all, to understand these differences so that you can arrive at a clear decision that fits your needs and goals.

Fortunately, it isn’t a complicated subject as both products are similar, apart from one key component difference. Let’s take a look at what that is.

Life Insurance vs Life Insurance Savings Plan

While there are some subtle differences in the finer aspects of each, the main difference between a traditional life insurance policy and a life insurance savings plan lies in their structure. 

A traditional life insurance policy is an agreement between an insurance company and a customer whereby the insuring party pays a substantial sum amount to policy beneficiaries in the event of the policyholder’s passing.

There are various structures available, but most commonly, the policyholder is covered either for an agreed amount of time (known as a term policy) or a permanent amount of time (known as a life policy).

On the other hand, a life insurance savings plan – sometimes referred to as an endowment plan – provides that crucial ‘death benefit’ to loved ones just like a traditional life insurance policy but also includes a savings element to the product.

This basically means that the policyholder can accumulate a nice pot of savings over time that can be used for a rainy day – or even taken out to cover future premiums.

Again, whichever way you look at it, the idea behind both products is the same; the peace of mind afforded in knowing that your loved ones are financially protected should the worst happen.

How Does a Savings Plan With Life Cover Work?

As you can see, a life insurance savings plan is a more complex option than a regular life insurance policy, which offers a savings element along with traditional life insurance benefits.

As a result, you could argue that a life insurance savings plan is more comforting, at least in overall terms.

But how exactly does it work? Basically, the process begins by setting a time frame for your savings plan, usually spanning a minimum of 10 years, although on average, a 20-year time frame would be quite typical.

We all have unique circumstances, of course, and so it is best to consult with a financial advisor to determine a timeframe that suits your profile.

Monthly Payments

Once you have established your time frame, you’ll need to start making regular policy payments,  usually taken out through Direct Debit. Currently, you are allowed to pay up to £25 tax-free each month. 

So, what is the typical cost of a life insurance savings plan? As you might expect, policies come in all shapes and sizes depending on various factors which can shape the amount you pay each month.

However, in most cases, you are probably looking at somewhere in the region of £40-50 per month for life insurance savings.

But how exactly is your monthly payment divided, given that some of it goes towards the insurance policy and some of it is saved? Let’s take a look at what happens to your money once it is handed over.

life policy savings plan

Where Does My Money Go?

The money you invest is split between a contribution towards your life insurance and funds that are invested. In other words, a part of your premium acts in the same way that a regular life insurance policy would, while some of it is used for speculating. 

The premise is quite simple – and similar to how banks generate profits – in that the insurance company will invest some of your monthly premium into various investment portfolios (such as shares, bonds, and property). The value of your payout is then determined by the success of those investments. 

But it doesn’t end there. Customers can have greater control over how their money is invested, with the option to choose between a with-profit basis (where the company controls where to invest your money) or a unit-linked basis, where customers decide where it is invested. 

At the end of the policy term, you will then receive a one-off sum payout, depending on how the investments performed, as well as any bonuses that may have accrued during the period.

Is My Money Safe?

All types of investments have a risk attached to them because that is just the nature of investing. The value can indeed change over time, which means there is a possibility that you may not get back as much as you put in – although the risk is quite low. 

However, the risk is negated to some degree, as most policies offer a guaranteed minimum payment at the end of the term.

Generally speaking, there isn’t much to worry about in this regard – your money will be looked after by an insurance company. 

The only reason there would be a problem is in the rare event the company went out of business or if you had a unit-linked plan invested in stocks and shares and it was to perform poorly.

Given these turbulent times with an uncertain economy, it might be more prudent to lean towards a profit-linked policy.

What Are the Main Benefits?

As you can see, the difference between a traditional life insurance policy and a life insurance savings plan is quite simple.

They are very similar products designed to furnish you with peace of mind.

But what are the benefits of taking out a savings plan?

  • Greater flexibility: A life insurance savings plan allows flexibility to save at your own pace for various goals in life, such as homeownership or vacations, for example.
  • Tax-Free Savings: The savings component in a life insurance savings plan grows tax-free.
  • Lifetime Coverage: Unlike full-term life insurance policies, a savings plan can provide coverage for your entire life.
  • No Medical Exam: No need to experience thorough medical exams (at least, not typically). 
  • Withdrawals and Loans: A life insurance savings plan allows for withdrawals and loans against the cash value.

How Do I Sign Up for a Life Insurance Policy?

If you’re looking to take out a savings plan with life cover included, Insurance Hero, can help you find great deals available on the market right now.

As an independent company, Insurance Hero is not owned by any insurance provider, which means the information and quotations we provide are completely unbiased.

We specialise in finding our customers the best life, income protection, and critical illness insurance quotes.

Reach out for an online quote, and we will scan the market for the best insurance products from leading providers that meet both your needs and budget.

If you prefer a quick chat with one of our experts, you can contact us directly

What Charges Are Involved?

While Insurance Hero provides all of our customers with a free service, there will of course be some charges to take under consideration with the insurance company directly, once we have found the perfect provider for your specific needs.

Let’s take a look at those possibilities

In addition to your monthly or yearly premiums, there may be other fees and charges that apply in addition, although these will of course be stated clearly before the policy is taken out.

These fees can sometimes include administration fees paid to the policy company, charges that might apply if you receive any bonuses during your policy, and exit charges if you decide to end your policy before the agreed contract period is over.

It’s also important to note that if you decide to switch how your money is invested (with profit or unit profit), you may face switching fees with the majority of providers, after the initial switch.

Perfect Solution

You might describe a life insurance savings plan as having the best of both worlds; the safety and peace of mind afforded by financial protection (should the worst happen) while also saving some additional funds for your personal goals and dreams.

By investing in a savings plan with life cover, you will have the flexibility to save at your own pace, tax-free, and potentially see your investments grow over time.

To get started with a life insurance savings plan, reach out to Insurance Hero today.

As an independent company with access to insurance providers across the UK, we can help you find the best policy to meet your specific needs and personal budget. 

With our assistance, you can protect your loved ones’ future while achieving your savings goals at the same time.