How much should life insurance cost a month?
There are many misconceptions surrounding life insurance cover. One of the most common is how much life insurance costs per month.
According to leading insurer SunLife, 47% of people in the UK are not able to answer; how much is life insurance?[1].
These misconceptions could help explain why less than 50% of adults have any form of life insurance protection. This cover gap, unfortunately, leaves many families in the UK financially vulnerable if the worst were to happen.
How would your loved ones afford the mortgage repayments, household bills or meet family living costs if you were no longer around to provide?
According to an article on reassured.co.uk the average cost of life insurance in the UK varies between £13.24 – £30.40. However, in reality, the cost of your life insurance is heavily dependent on your personal circumstances.
Let us help you by running through what to look out for to ensure you never pay over the odds for your life insurance policy.
10 factors that affect the cost of life insurance
Before establishing how much the average life insurance costs per month you need to understand the key cost factors:
- Your age – The younger you are when you take out a policy, the cheaper your monthly premiums
- Amount of cover (or sum assured) – The greater the cover amount, the higher your premiums
- Length of the policy (or term) – The longer the policy term, the higher your premiums
- Type of life insurance – The type of policy you take out affects cost. For example, decreasing term cover, where the cover amount decreases over time, will be cheaper than whole of life insurance which guarantees a payout
- Smoking status – If you smoke this will increase the cost of premiums
- Health – If you have or have had any medical conditions, such as diabetes or cancer, this will increase your premiums
- Weight – If you are overweight your premiums will increase
- Alcohol consumption – If you regularly consume high levels of alcohol this will increase premiums
- Lifestyle – If you regularly take part in extreme sports, do a dangerous job or regularly travel to dangerous countries this impacts premiums
- Family medical history – Even if in good health if there’s a history of hereditary illness this can increase premiums
The type of life insurance policy you choose
Did you know that the policy type you choose has a major effect on how much life insurance costs?
There’s a difference between life insurance, which pays out if you die and life assurance, which pays out when you die.
Term-based life insurance options only pay out if you die during the policy term.
Therefore, you can outlive your policy, hence there’s less risk posed to the insurer and thus lower premiums.
- Decreasing term life insurance – The cheapest option, usually used to cover a repayment mortgage, (but not much else). The pay out amount decreases over the term of the policy
- Level term life insurance – More expensive than decreasing term, the cover amount remains level throughout the term. Often used to cover an interest-only mortgage
- Family income benefit – Pays a regular monthly income instead of a lump sum, generally a cost-effective option. Commonly used to meet day-to-day living costs, effectively replacing an income
Life assurance policies pay out when you die and are not term-based.
As a result of a pay out being guaranteed, premiums usually cost more than term-based cover as the insurer knows they have to pay out.
- Guaranteed over 50 plan – As a result of guaranteeing acceptance if aged 50 – 85 and no medical questions being required, premiums are hiked to mitigate the risk posed to the insurer. These policies are often used to cover rising funeral costs
- Whole of life assurance – Cover lasts as long as you live and guarantees a pay out. As there’s no set term, it’s generally the most expensive option. Good for those who want to guarantee a pay out to provide an inheritance or meet funeral costs
Joint life insurance or 2 single policies
If you are in a relationship (married or not), you may want to consider a joint life insurance policy.
The main advantage of a joint policy is that it’s usually around -20% cheaper compared to the combined premiums of 2 single policies.
Whilst a joint policy is significantly cheaper, it’ll only ever pay out once (usually on the first death). In contrast, 2 single policies will offer 2 separate pay outs – double the coverage.
Also, if you have a joint policy and one of you passes away, it then leaves the remaining partner to either find a new policy when older (higher premiums) or be left without cover.
Fixed or reviewable premiums
When you take out a life insurance policy you usually have the option of paying either a fixed or reviewable premium.
Fixed premiums are, as the name suggests, ‘fixed’ throughout the policy term. You know exactly what you have to pay each month and can budget accordingly.
Reviewable premiums are commonly cheaper initially, but the insurer has the right to increase the cost at certain points during the policy.
As a result, reviewable premiums can often end up being more expensive in the long-run.
Life insurance calculator
When wondering how much life insurance should cost it can be tempting to use an online life insurance calculator.
While these are readily available and usually simple to use, as discussed there are a huge number of factors which can affect the cost.
Online life insurance calculators are usually relatively basic, not taking into account much data and therefore, are unlikely to provide a true picture of how much your cover will cost. This is the best life insurance calculator we identified from our research.
This can set unrealistic expectations when applying for a policy, as well as creating disappointment when the true cost is quoted.
To obtain a true cost of life insurance for you, it’s best to get in touch with a specialist.
Whilst you can go directly to a specific insurer, your average life insurance premium can vary between providers.
The most reliable way of getting a no-obligation, free quotation for how much life insurance will cost, whilst obtaining the best deal, is to use an FCA regulated broker.
Always compare life insurance quotes
As you can see above there are many factors which influence how much life insurance should cost per month?
However, even after you’ve determined the amount of cover you need and the most suitable policy type, that isn’t where the process ends.
The key to finding the perfect policy is to compare multiple quotes as the cost of premiums vary.
Costs vary because insurers employ different underwriting methods – don’t assume all prices will be the same.
There are 3 cost-effective ways in which you can compare multiple life insurance quotes:
- Carry out the research yourself online, however this can be both frustrating and time-consuming
- Use a comparison website, although usually, they don’t compare all the available providers
- Ask an FCA-registered life insurance broker to compare all the major insurers on your behalf. This is usually free of charge
I hope this article has been helpful and has allowed you to make a fully informed decision on whether you require life insurance and importantly how much it will cost.
Sources:
[1] www.sunlife.co.uk/press-office/public-overestimate-price-of-life-insurance-by-almost-400-
[3] https://www.reassured.co.uk/life-insurance/best-life-insurance-providers/
