How to avoid overpaying for life insurance

How to avoid overpaying for life insurance

author: Bryony Pearce

By Bryony Pearce

From what it is, the types of cover and how to reduce your costs, in this blog, we share our top tips on how to avoid overpaying for life insurance.


It’s one of those subjects none of us really want to think about, but the financial impact on your nearest and dearest, should the worst happen, can be massive.

While we all hope we’ll be around to watch our children grow up, we also all want to know they’ll be okay if anything were to happen to us and having life insurance in place can provide that peace of mind.

But, as can often feel the case when shopping for financial products, the options on offer to you may seem confusing, and working out whether you’re paying too much for your life insurance could feel like a real headache. Don’t worry though, because we’re here to help.

What is life insurance?

To put it simply, life insurance is an insurance policy that pays out a sum of money after either a set period of time or on the death of the insured person.

Therefore, should the worst happen to you, by having life insurance, you'll leave behind a sum of money to those closest to you.

But how can you make sure you’re not paying too much for your life insurance, we hear you ask? Let’s take a look.

Types of life insurance

The first thing to look at when working out if you’re overpaying is the type of life insurance you have or are considering taking out. Let’s have a quick look at what’s on offer.

Level term insurance

This pays out a fixed lump sum if you die during a set time. In terms of the cost, this depends on the amount of cover you want and how long you want it to last.

Mortgage decreasing term life insurance

The aim of this form of life insurance is to clear your mortgage, so as your mortgage debt decreases so does the amount your cover would pay out. The costs here vary entirely based on the value of your property and how much you have left to pay on your mortgage.

Whole of life insurance

As the name suggests, this level of policy is ongoing until you die, whenever that may be. Because this means that at some point the policy will have to pay out, this level of cover is the most expensive.

Which type of cover to choose

Unfortunately, we can’t give you a set answer here, because ultimately, it’s totally dependent on your personal circumstances and what you want your life insurance policy to do for you.

However, if we strip it right back and just look at the cost, then 'whole of life' insurance is likely to be the most expensive option.

If you’re worried about the cost of your mortgage should you no longer be around, then a decreasing term life insurance would be your best and cheapest option, since the price you pay will decrease alongside your mortgage debt.

If it’s simply that you wish to leave a lump sum behind, then it’s a level term insurance policy that will meet your needs for the best price. It’s up to you how much you want to cover, and this will be reflected in what you pay. However, there are ways to ensure you’re paying the best possible price for your cover.

Medical history

When you take out a policy you’ll be asked a series of questions relating to your medical history. Whether or not you’re a smoker will be one of them, and if the answer’s yes, you’ll undoubtedly pay more for your cover.

However, if you already have a policy in place and you used to smoke but have since given up, you’re probably paying too much for your life insurance.

So long as you haven’t had a serious medical condition in the meantime, it would be worth seeing if a new policy could be cheaper.

Check if your employer offers life insurance

Some workplaces have an employee package which includes ‘death in service’ benefits. If your employer is one of them, this will give you cover for a multiple of your salary and could mean you don’t need any additional insurance.

It’s worth finding out if your workplace offers any such package as you could save yourself the cost of monthly premiums.

TIP: if you are offered a package through work, do the sums and make sure what’s on offer is enough to cover everything you need. It’s also worth remembering that if you move jobs you’ll no longer be covered.

Compare the market

One perk of the busy financial market is that businesses are in stiff competition for your custom, and therefore offer some very competitive deals on life insurance.

Price comparison websites are a great way to see what’s available and can help you secure the best price for your life insurance. 

Don’t take the first offer you get

When taking out a mortgage you’ll have discovered that having life insurance in place is an essential requirement. However, this doesn’t mean you have to accept a life insurance offer from the same bank you’re getting your mortgage.

Only a handful of smaller lenders still make mortgage deals conditional on buying a life insurance policy, but most of the big lenders will allow you to shop around.

Exercising this right could save you from overpaying for your life insurance, and research indicates this could be by as much as 50%. So, don’t feel pressured by your bank, or assume you’ll be getting a better deal.

Make the switch

If you’ve already fallen foul to this, dig out your paperwork and look at how much you’re paying and what you’re getting in return from your mortgage provider. Get online and compare the market, and if you find a cheaper offer make the switch.

Write your insurance policy ‘in trust’

Although we’re talking about saving money on your policy here and now, there are other ways you can make sure you’re getting your money’s worth in the long term.

Since a life insurance policy is yours, if you die the money that’s paid out then forms part of your estate, making it liable for inheritance tax.

However, when you take out your insurance policy, if you write it ‘in trust’ to your dependents, the money goes directly to them which means inheritance tax isn’t due.

Do you actually need it?

The final way you can make sure you’re not overpaying for your life insurance is working out whether you actually need to be paying it at all.

If you’re struggling to work out whether or not a life insurance policy would be right for you, ask yourself the following:

1. Would there be a financial impact on my partner or children if I died?

2. Would my partner or dependents be able to maintain living expenses, mortgage repayments and other payments if I died?

If you’re single and currently have no dependents, then you might not need life insurance at the moment. Equally, if you don’t contribute financially to your household or don’t think your family would struggle financially should anything happen to you, then a life insurance policy might not be necessary. 

Disclaimer: All information and links are correct at the time of publishing.

author: Bryony Pearce

By Bryony Pearce

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How to avoid overpaying for life insurance How to avoid overpaying for life insurance