How much will it cost me and what factors affect this?

August 10th, 2022
How much will it cost me and what factors affect this?

We all want to ensure that our loved ones will be taken care of in the event of our death. A robust insurance policy is one of the best ways to give your family proper financial protection and security should you die during the term of your policy.

One of the most common questions we see being asked by those who are considering taking out a policy is: what is the average cost for this type of insurance policy? Now, there isn’t necessarily a straightforward answer to this question because there are numerous factors that contribute to the overall cost. So, let’s begin by taking a closer look at some of those factors.

What factors influence insurance costs?

When shopping around for life insurances, you will notice that many providers offer a calculator tool that asks a few questions before displaying an estimated monthly cost for your needs and circumstances. The further you progress into the application process, the more in-depth the questions will become. However, you can expect your potential insurers to look at the following factors when reviewing your application:

Your age and overall health

The younger you are when you apply for an insurance policy, the lower your premiums are likely to be simply because insurers will view you as a lower risk. As the cost of insurance premiums will generally increase as you age, it can be a good financial decision to take out a policy as soon as possible, particularly if you have dependents or a young family.

There are, however, a range of insurance options for older people as well, so don’t immediately use your age as a reason to discount taking out a policy altogether.

Insurance premiums are also often affected by your overall health. So, if you have a medical condition that is life-threatening or you are at a greater risk of developing a condition due to smoking or excessive drinking, your policy is going to cost more than the policy of a fully fit and healthy person who doesn’t drink or smoke.

The type of cover you want

Term insurance policies will only pay out the agreed sum if your death occurs at a time when your policy is active. However, whole of life policies will pay out in the event of your death, regardless of when it occurs.

As insurers will have to award a payout with a whole of life policy, they are typically more expensive than term policies.

The level of cover you want

Naturally, larger payouts command higher premium costs so it is important to accurately estimate how much cover you want to take out to ensure the financial security of your loved ones.

If you want your insurance policy to cover numerous outstanding debts and look after a number of dependants, you will need to take out a higher value policy than someone with one or two dependants and no mortgage.

Details about you

Insurers generally ask a selection of questions designed to help them estimate the level of risk they would take on should they approve your application. These questions will cover an array of factors, including your occupation and your medical history. Just as an example here, an office worker is likely to have lower insurance premiums than a helicopter pilot.

Additionally, where you live can make a difference to your monthly premiums depending on your circumstances.

Let’s say that you want your policy to cover an outstanding mortgage. Now, the amount owed on that mortgage will depend on a variety of factors, including your geographical location. In 2019, the average amount of household mortgage debt was £130,000 [1]. During the same period, the city of Winchester officially topped the list of the most expensive places in the UK to purchase a property, with average prices coming in at 14 times greater than the average UK salary. So, insurance premiums for a policy that would cover the outstanding mortgage on a Winchester property are going to need to be higher than in some other areas of the country.

Whether you take out any optional extras

Many insurers also provide a selection of extras that can be added to your policy. However, doing so will increase the cost of your premiums. While some insurance policies offer integrated critical illness cover, it is more common to see this offered as an extra. It is also possible to incorporate serious illness diagnoses, but this will also increase the cost of your premiums.

How much insurance for life do I really need?

Many people under or overestimate the amount of insurance cover they really need, so it is worth sitting down to carefully determine precisely what you want any payouts to cover. It is important that your policy will clear all outstanding debts including mortgages, and you may also wish to cover the future financial needs of your family. But do remember that taking out an excessively large policy will result in significantly larger premiums.

When deciding how much coverage you need, it can be beneficial to ask yourself the following questions:

Do I have a mortgage and, if yes, how much is still owed?

If you are taking out a policy as part of purchasing your first property, it is essential to ensure that it is large enough to fully clear the mortgage. This applies to everyone with an outstanding mortgage balance, the value of which will be clearly displayed on your latest mortgage statement.

How much insurance will be needed to cover future rental payments?

If you are not a property owner and choose to rent instead, you should consider how long you expect your loved ones to continue living at the property and therefore how much cover is required to meet the associated rental payments. It is also worth incorporating the possibility of rental price increases in this figure.

Do I have any other debts that I want covered?

Consider any store cards, credit cards and car loans to ensure that any insurance payouts will be enough to completely clear all outstanding debts in your name.

I want to ensure the financial security of my family, how much will they need?

There are numerous facets to this question, including the costs of childcare, university fees, holidays, and general expenses your children may need until they reach full financial independence.

Should I account for a lump sum in my calculations?

In the event of your death, there can be a variety of things that need to be paid for. Leaving a lump sum can help to cover the cost of your funeral and ensure that the everyday living expenses for your family are covered.

Do I have other insurance policies?

When it comes to insurance life cover comes in many forms. Your employer may provide cover that can pay out up to four times your salary in the event of your death, which could allow you to reduce the level of cover included in other insurance policies.

Some life cover policies have additional perks attached to them, which may offer value for money in the long term. These additional extras may include providing access to wellbeing and counselling services and even regular discounts at popular retailers throughout the duration of your policy. It is important to ensure you aren’t solely attracted by these offers, which can sometimes simply be clever marketing tactics to draw you in.

Although we have already seen that the costs of insurance premiums will vary from person to person, let’s take this opportunity to look at the average cost for life insurance to give you a better idea of what you might be able to expect from your application.

What is the average cost of life insurance in the UK?

Although precise insurance policy costs will naturally vary from person to person, if you have landed on this page after searching “life insurance average cost” we want to provide you with at least a rough idea of what your policy premiums might look like.

Life cover premiums in the UK can cost as little as £5 per month [2], however this level of premium is generally only available to young non-smokers with no pre-existing medical conditions.

In general terms, those who start a policy before the age of 30 will end up paying less. £5 per month might buy you £150,000 worth of cover at the age of 20. If you hold off until you’re aged between 35 and 45, this will likely rise to around £18. It further increases to £20 in you 40s and more than £30 a decade after that. [4] Essentially, although you will pay premiums for longer, those who commence their policies at a relatively young age are likely to pay less overall.

Of course, the amount you pay depends on a variety of factors, but for most people, starting earlier can be a wise move.

How can I minimise life insurance costs?

Insurers calculate the cost of life insurance by assessing how likely they are to pay out on your policy. However, there are numerous strategies you can use to reduce the cost of your premiums, including:

Reducing your risk factors

Even relatively small changes can make a significant difference to the cost of your insurance premiums. For example, you may decide to increase the amount of exercise you are doing each week, decrease your alcohol intake, and stop smoking.

Reducing your cover

It may be beneficial to consider taking out a decreasing policy, which will pay out a sum that is aligned with the extent of your outstanding debts in the event of your death.

Taking out a joint insurance policy

Some life insurers offer joint policies designed to cover both yourself and your partner. In many instances, this type of policy is available with some form of discount, which could improve the affordability of the most wide-reaching policies.

Boost your credit score

Boosting your credit score is a highly effective way to prove to insurers that you will reliably make consistent payments throughout the duration of your policy. This means that you may be eligible to secure the policy you want at a reduced premium.

While insurance policies can appear to be yet another monthly expense, they can help to give you and your family a level of security that wouldn’t otherwise be available in the event of your death. Data from the Association of British Insurers from 2020 [4] illustrates that £17million per day was paid out to the families of policyholders to cover an array of expenses from mortgages to car loans and the cost of university education.

If you are considering taking out an insurance policy that will protect your loved ones in the event of your death, the good news is that there are an array of insurers available with policies designed to suit all ages and circumstances. Shopping around and comparing quotes here at Free Price Compare will allow you to ensure that you are getting the best value for money, with robust policies providing peace of mind for everyone.

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