Buy too little and you’re still exposed to financial risk, buy too much and you could be wasting money at best or worse have to cancel the policy because you can’t afford it.

How much life cover do you need?

Well how much time do you have? There’s a short and a long answer to that question but as the answer is so important to your financial stability, we would encourage you to spend a few minutes taking a more detailed look at your finances to reveal your cover need number.

If you really don’t have time then a rough guide is to multiply your annual salary by six, and use this as a minimum cover amount. However, please remember that this is a very basic method that doesn’t take into account your personal circumstances and needs. Therefore you could be under-insured.

Again, we would recommend that you put the kettle on, sit down with your most recent bank statements and make a detailed assessment of your current financial position.

How to find your cover need number

Don’t be deterred by the name… ‘cover need number’. It’s quite easy to work out when you’ve got all your documents to hand. We’re going to take it step by step until we’ve got that magic figure. Here goes…

Step 1 – Cover Duration

First, you need to decide how long you need life insurance for as this can influence the total amount of cover you’ll need. If you’re needing a Whole of Life Insurance policy you can skip this step as you’ll be covered for life anyway.

Remember that life cover is to protect those who are financially dependent upon you from being disadvantaged by your death. As you’re reading this post, you’d no doubt answer Yes to the question “If I died today, would anyone be financially worse off?”. The question you need to answer now is “When do I expect to answer no to that question?”.

Will it be when you pay off your mortgage? When your children leave home? Or when you retire for example.

In short, how many years will it be before your current dependents are no longer financially dependent upon you? This figure should be considered as the duration of your term life insurance policy.

More than likely, your answers to these questions will be best guesses or estimates and there are a range of other factors you could consider. Unfortunately, only you and your dependents can way up all these factors and decide upon an accurate policy term figure.

Even so, the key question is simple… at what point can you reasonably say that no one other than yourself will rely upon your financial support?

This is serious stuff we’re dealing with here so it’s better to take your time and be safe rather than sorry. Remember though, if you are in any doubt, consult an independent financial or insurance adviser for unbiased guidance.

Write your chosen policy term here:       years

Step 2 – Current Annual Living Expenses

From your bank statements and other documents work out a total figure for your current annual living expenses less any expenses that would cease on your death.

It might be easier to work out a monthly figure and just multiply it by twelve to get your annual figure. Don’t include any debt repayments on a mortgage, credit card or loans as we’ll deal with these next. Multiply this figure by your chosen policy term from step 1 above to give you your total living expenses.

Write your annual living expenses here: £
Write your total living expenses here: (annual expenses x policy term) £

Step 3 – Current Debts

Get your most recent mortgage, credit card, loan or finance statements and add up all the outstanding balances to give a total debt figure.

Write your total debts here: £

Step 4 – Future Financial Obligations

If you expect to have additional financial obligations in the future such as paying for a newborn child’s nursery care or eventual university education, add these together below.

Write your total future financial obligations here: £

Step 5 – Existing Cover

If you have any existing life insurance covering your mortgage for example, or cover provided by an employer, add it all together.

Write your total existing cover here:

Step 6 – Here comes the Maths bit…

First, add the figures together from  steps 2, 3 and 4. Next deduct the existing cover figure from step 5. The figure you’re left with is your ‘cover need number’.

Write your Cover Need Number here: £

Please bear in mind that this cover need number is only a guide to the amount of life cover you should buy. If you are in any doubt about calculating this figure, please take advice from an independent financial or insurance adviser.

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Joint life insurance is cheaper, but…

Many couples take out joint life insurance to cover mortgages or to provide financial protection for their children if one partner should die or become critically ill.

However, by trying to save a few pounds with a joint policy rather than two separate ones, you have to settle for cover that offers just one pay out leaving a surviving spouse uninsured.

On the surface, the cheaper joint life option may seem more attractive for a young couple with children, a mortgage and a tight budget. If one partner dies, the surviving partner can use the insurance pay out to cover the mortgage, thereby providing the family with some security. The down side is that the partner who is left behind is then uninsured and unprotected, because the policy terminates after a single pay out. If this occurs fifteen or twenty years after the policy was first purchased, the surviving spouse may be in their forties, possibly even in poor health, making it harder and more expensive to buy new cover.

Another disadvantage with a joint policy is that while it works well enough to pay off a mortgage or other debt, it’s not an ideal method of replacing the lost income of the deceased partner. This tends to be a problem because each partner will most likely have a different level of income, and because a joint life policy insures each partner for the same amount, it cannot account for the varying levels of protection each may require.

The practical solution

The most practical solution for all of these problems is to purchase two separate policies. This may be slightly more expensive than joint cover, but in the long term, there are several advantages.

• Most importantly, you are covered with twice as much insurance protection.
• If one of the policyholders dies, the surviving partner is still covered.
• If a couple is married and later separate, dividing up the insurance is a simple matter. It’s impossible to divide a joint policy between two separating partners unless a separation option is included in the policy.

Overall, buying two separate life cover policies does cost more, but in the long term the advantages more than pay for it. Given that buying two separate policies can be only marginally more expensive than joint cover, it can be more practical and prove better value for money.

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First, it’s important to understand what influences your life insurance premiums so that you can take advantage of any opportunities to reduce them.

Have you got the risk factor?

Like all insurance, life cover is about insuring a risk – in reality two risks. From the insurers point of view, they will only be thinking about the risk to them of having to pay out a sum of money if you die as a policyholder. Then there’s the risk to your dependents of having to cope financially if you died as the main income earner for example.

In effect, a life insurance policy is the transfer of your risk to an insurance company in return for a sum of money that is related to the amount of risk you are transferring. And the insurance company will only be willing to take on your risk if you fall within their risk factor which can often differ between companies.

Insurers calculate your risk factor by employing a process called ‘underwriting’ to assess the chances of you dying as a policyholder. The greater the risk or chances of you dying, the higher your premium will be. But if you’re considered too risky, your application could be postponed until more information can be gathered or declined altogether.

The type of policy you choose can also affect the risk, that’s why Whole of Life Insurance policies are so much more expensive than Term based plans, because the insurer knows that they will definitely have to pay out on a Whole of Life policy.

So how does the insurer assess your personal risk factor?

It all comes down to good old questions and answers.

The questions…

When you apply for a life insurance policy, the application form will ask you a series of detailed questions designed to assess every part of your life that could influence your risk to the insurer. These risk based questions include:

• Your age and gender
• Your job
• Your legal history such as convictions
• Type and amount of cover required
• Your current health including weight, tobacco and alcohol use
• Your medical history
• Your family medical history

Whilst a great deal of effort goes into designing these application forms, some of the questions can still be confusing. If you are ever in any doubt, always ask the insurer for clarification before completing the form.

And that brings us to the next part.

Your answers…

Whilst the answers you give to these questions will directly affect the premium you pay, don’t be tempted to underestimate your weight or leave out a hospital visit to save a few pounds.

Don’t forget that your life insurance policy is a contract between you and the insurer which includes a signed declaration that all information you provide is true and correct. If you ignore this and a claim is made, the insurer will reject it and cancel the policy if you are discovered to have withheld information or given false details.

More importantly, your dependents will be without the valuable funds they need to secure their financial future when they need it most. You could also be prosecuted for fraud.

So always tell the truth and give complete answers. If in doubt, declare it anyway or contact the insurer.

How does all this help you?

If you want to take control of the premiums in your life cover quote, it’s important to understand how it’s calculated and what factors have the greatest impact.

All the risk questions above can have a big impact on your premium, but the ones that have the biggest direct impact which you can control are:

• the type and amount of cover required
• your weight
• your alcohol consumption
• your tobacco use if you smoke.

Changing any of these for the better will affect your premiums but stopping smoking will result in the biggest savings. Bear in mind that most insurers will require you to have been a non-smoker for at least 12 months before offering you non-smoker rates.

Please note that this information does not represent personalised advice and is not a recommendation that any product matches your circumstances. If you should have any doubts please contact an independent financial adviser so that your individual circumstances can be considered.

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Even if the insurer needs to write to your GP for more medical details, you should have a decision within a few weeks. Just remember to keep chasing your doctor’s surgery as they can delay the whole process by weeks if they’re a bit slow.

Remember, the squeaky wheel gets the grease.

The medical history report option

If the insurance company need to request a medical history report from your GP and you’ve ticked the option on your application form to see the report, it could delay your policy by as much as two weeks!

Many people wrongly assume that by ticking the option to see the report they will just be sent a copy in the post. In fact, the surgery won’t return the medical report to the insurance company until you’ve physically been in and viewed it.

So, if it’s not that important to you, skip the option and you’ll avoid any unnecessary delays. If you weren’t aware of this and have already submitted an application with the report option selected, contact your insurer or broker to get it removed.

If you’ve not made any progress with your life cover yet there’s no time like the present, particularly as life insurance get’s more expensive the older you are.  In fact, if you have a birthday or even a quarter birthday coming soon, you’d better get moving as your quotes will be going up.

It’s quick, simple and most likely cheaper than you expect. Just head over to our discounted life insurance quote page and choose your cover type to get the ball rolling.

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Whilst the internet and an increase in price comparison sites has made it easier to compare multiple quotes at once, not all insurers are quoted on one website. Even if they were, how could you be sure that the premiums being quoted weren’t being offered cheaper elsewhere?

The only answer is to continue to shop around, even amongst different price comparison sites. They are just a tool to be used in your research and you shouldn’t devote all of your efforts to any one source.

Here’s five tips to keep you on the right track:

1.    Do your shopping online – generally, online prices are cheaper than the high street and price comparison sites will save you loads of time.

2.    Know your needs – it’s important to start your research with an exact type, amount and term of policy in mind. That way you can compare like with like and spot the real bargains.

3.    Use at least two comparison services – the big price comparison sites generally offer the widest comparisons but the number will vary. So, use at least two services to cover as much of the market as possible. This will give you a market average price for the cover you want and a shortlist of the cheapest providers.

4.    Get quotes from big names not already quoted – some of the big names like Aviva and Direct Line don’t participate in price comparison sites, so you’ll have to go to them direct to get their premiums. These are big, competitive insurers so it’s worth taking the time.

5.    Try a discount broker – by now you should have quotes from big insurers, little insurers and white label providers. Now’s the time to try a discount life insurance broker who can quote from a range of providers, many of which you may have already have quotes from via the big price comparison sites. The difference with a discount broker is the ‘discount’ part. They give up a portion of the commission paid to them by the insurers they quote to reduce the premiums you see in their quotes. So, you could see the same insurer and same policy as quoted on other sites, but with a lower premium. This doesn’t mean that the policy is a cut down version or that you’ll get less service from the insurer.

If you do nothing else, just remember to shop around. By all means, get a quote from your bank or your car insurer but don’t buy from them just because it’s easier. It could cost you hundreds or even thousands over the term of your policy.

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Apart from the obvious health benefits you’ll be enjoying, if you’ve got a  life or critical illness insurance policy you could also be paying substantially less for your cover as premiums non smokers can be up to 60% less than for smokers.

How to pay less as a non-smoker

Most insurers will recalculate your premium once you have been free of tobacco products for at least 12 months but, some insurers may require you to have been a non-smoker for two years or more.

So, once you have stopped smoking for 12 months, the first step is to compare life assurance providers and arm yourself with quotes from other insurers for a new policy with the same or better cover benefits where the non-smoker premium basis is classed as ‘not smoked in the last 12 months’. If you have an eventful medical history then you may be better to use a broker who can match your circumstances to the most appropriate policies.

Following this, contact your current insurer and inform them of your new non-smoker status. Ask them for a premium reduction and compare what they offer with the quotes you have already received. If your current insurer’s reduced premium isn’t competitive, use the market to your advantage and ask them to match the best quote you’ve had from other providers.

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Potential costs to you

• If you cancel a policy now and decide to replace it in a few years, it could cost you thousands of pounds in higher premiums over the term of the new policy as you will be older.
• A change in your health or lifestyle circumstances whilst you are uninsured could mean a substantial increase in future premiums if you decide to apply for cover again, or even your application being declined.

Potential costs to your dependants

• If your policy is to cover a debt or provide financial support for your family should you die, then your dependants could be exposed to substantial financial risk if you cancelled your cover.

Ways to cut the costs of your life insurance without cancelling

There are alternatives to cancelling your existing cover if saving money is your motivation.

The first step is to review the suitability of your current policy and ensure that you are not already paying for cover you might not need. For example, if the policy was originally taken out for family protection but one or all of your children are no longer financially dependant upon you, there maybe no further need for some of the cover provided. If so, contact your insurer and request a reduction in your cover which will also reduce your premiums. Likewise, you may be paying for policy options that are no longer required which, if removed, will often reduce your premiums.

Whilst it might be tempting to cancel your existing policy, exposing your dependants to financial risk by cancelling your cover could be an expensive mistake.

If you are in any doubt about the suitability of your life insurance to meet your current needs, contact an independent financial or insurance adviser for professional advice.

Ways to cut the costs of your cover by replacing it

Depending upon your age and circumstances, you could save much more by replacing your existing policy with a new one. Again, a review of your current needs is essential to ensure you get the right cover at the best price and be sure to maintain your current cover until any replacement plan has started.

If your personal or financial needs have changed since you took out your current policy, there may be scope to change the type of plan, the cover amout or policy options to save you money. This together with reductions in premium rates over the last 5-10 years could result in a substantial monthly saving.

If your circumstances are straightforward and you don’t require advice, you could also make further savings by using a discount life insurance broker like Life Saver.

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However, the tax man could still potentially take a huge 40% share of the proceeds if a life insurance payout takes the total value of your estate over the current inheritance threshold (£325,000 09/10). With the average house price currently around £198,000 (source: BBC), only a modest £127,000+ payout would result in a potential liability to inheritance tax on everything above the current threshold.

How to protect your policy from inheritance tax

Thankfully, the completion of a short form is all it usually takes to ensure that any life insurance payout reaches your beneficiaries in full without the tax man taking a cut. Most life insurers will send you a Trust deed and place the policy in trust at no extra cost. This has the effect of placing the policy proceeds outside of your estate and under the control of the trustees which you nominate. The trustees would then administer the terms of the trust and ensure the policy proceeds are paid to the people you choose, also known as beneficiaries.

One additional advantage of writing your policy in trust is that any payout is received by your beneficiaries quickly without having to wait for probate.

Whilst policyholders who are married are not liable for inheritance tax when the estate of one deceased spouse passes to the other, there is still a tax risk if both die together leaving their estates to a dependant or other beneficiary. Therefore, if your circumstances are not complicated, it’s still a good idea to request a Trust form from your insurer and write your life insurance policy in trust. If your needs are more complex, you should take legal and/or financial advice before proceeding.

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Our busy lives mean that any of these situations and more are subject to frequent change which could result in you being under or over-insured if your cover doesn’t change with your circumstances. This is why a life insurance policy should not be just filed away and forgotten but reviewed every year or following any significant change in your personal or financial circumstances.

Some examples of events that should trigger a review of your cover are:

• Marriage or divorce (or reduction in dependants such as a child leaving home)
• Birth of a child
• Change of job – a new employer may have a different benefits package to your existing employer
• New mortgage or other debt
• Mortgage or other debt paid off

Life insurance is not the only form of financial protection that should be reviewed regularly. Other plans such as life assurance, critical illness cover, income protection, unemployment insurance are related to your personal circumstances and should be regularly reviewed.

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