There is a simple way to establish whether you need to view life insurance as an essential financial product. You just have to ask yourself whether your death would leave someone worse off financially.
If you are married, or share a joint mortgage with a partner or friend, life insurance is clearly a must-have. Otherwise your death would leave them trying to cover the mortgage and household bills alone. Equally, it’s an essential form of cover if you have children – the costs of parenthood are considerable, and you don’t want to leave your loved ones struggling to get by should you pass away.
It’s important to note that this doesn’t just apply to parents in work: there will be a financial cost if a stay-at-home parent dies too – for example, childcare.
Nonetheless, far too many people do not have any life cover in place. According to research from the Association of British Insurers this year, as many as one in four breadwinners has no life insurance, leaving their loved ones open to financial hardship if they die. Yet you can actually secure some life insurance cover for free.
Free life insurance in pregnancy
If you are expecting a child, you can get £15,000 worth of life insurance absolutely free from Tesco with its Enhanced Free Parent Life Cover.
In fact, as both parents can apply separately, you can get £30,000 worth of cover without paying a penny.
In order to qualify, you will need to join the Tesco Baby Club (Tesco-baby.com), which is absolutely free, and also secures you a range of discounts on baby-related products from the supermarket.
It is open to parents and prospective parents at any time between when they find out they are expecting and the child’s fourth birthday. It’s also available to those who have been officially matched with a child for adoption. The life cover lasts for 12 months.
Free life insurance for parents
A host of other insurers offer free life insurance to new parents for a 12-month period. Post Office Money offers Free Parent Life Cover of £15,000, and again you can double that if parents apply separately. It is open to parents with children under four.
Aviva underwrites the policies from Tesco and the Post Office, and you can secure free life insurance directly from them if you prefer. It works like the Post Office policy, offering £15,000 of cover per parent and you can apply for 12 months of cover from when the child is born until they are four years old.
With Tesco, Post Offi ce and Aviva, the cover is open to parents aged between 18 and 66.
Alternatively, you can head to Legal & General (L&G). Again you can enjoy £15,000 of cover per parent absolutely free, though with L&G you can apply at any time before the child’s fifth birthday. There is a stricter age limit on applicants – it’s open to parents aged 18 to 45.
A number of credit unions, such as Rainbow Saver Anglia and Eastern Savings & Loans, offers free life savings insurance. This will bump up the amount you have saved with the credit union when you die, though how much will depend on your age when you deposited the money into the account and the credit union.
For example, with Rainbow, savings deposited before the age of 65 will be increased by 100%. So if you deposit £1,000 with the credit union at the age of 50, then your loved ones will get £2,000 back when you die. This drops to a 25% increase for savings deposited between the ages of 65 and 79. The maximum cover available is £5,000.
Death in service
Many employers offer death in service as part of their benefits package, which works rather like life insurance. You might have to be enrolled into the pension scheme to get it though, so it’s worth checking.
Should you die while working for that employer, your loved ones will receive a lump sum. This figure is usually a multiple of your salary, though the size of that multiple will vary depending on the industry in which you work.
A study by Punter Southall Health & Protection Consulting a few years ago found that those working in financial services enjoyed the most generous death-in-service benefits, with payouts an average of 4.63 times the employee’s salary. In contrast, those working in retail were entitled to average payouts of three times their salary should they die.
Remember that your death does not need to be work-related for your loved ones to receive a death-in-service payout; you only need to be on the payroll when you die.
Emma Thomson, head of customer care at LifeSearch, says: “We’d usually advise clients who need life cover to protect their family and/or a mortgage to not solely rely on death in service as these benefits can be subject to change – for example, if a person changes their job as not all employers offer it.”
Keep cover costs down
Free cover should be seen as a supplement to a life insurance policy, rather than a replacement.
Standalone life insurance is actually a very affordable form of insurance – a 25-year-old non-smoker could get £100,000 of cover over 25 years for less than £4 a month, for example.
There are a number of steps you can take to keep your life insurance costs down. Firstly, consider how long you need cover for. The longer the term of your policy, the more expensive it will be – whole-of-life cover, which is guaranteed to pay out, is the most costly form of life insurance.
Next, look at whether you want decreasing term or level term insurance. With level term insurance, the payout remains the same whether you die in the fi rst or last year of your policy.
But with decreasing term, the size of the payout reduces each year. This is particularly popular with mortgage holders – the idea is that the payout you would need to cover the mortgage will be smaller in year 10 than in year one. As a result, it tends to be cheaper.
There is a third form to consider, as Ms Thomson explains: “A lesser known option is Family Income Benefit, where it pays an amount every year to the family; this is a costeffective option and it provides the family with a manageable amount each year rather than them having to worry about investing and managing a lump sum.”
Taking steps to improve your health can make a difference too – if you are overweight, your policy will be more expensive, as the chances of you dying will be higher.
Finally, if you are buying cover alongside your partner, consider whether you will be better off with separate policies or a joint policy. While a joint policy may work out cheaper, it will only pay out after the first person dies. If you have children, it may be sensible to take out separate policies.
Women and life insurance
- Mums do £26,000 worth ‘unpaid’ work every year,
- rising to £29,800 for stay-at-home mums.*
- 42% of mums don’t have life insurance, rising to
- 65% for stay-at-home mums.*
- 28% of women worry what would happen to them
- or their family if they became too ill to work or died.**
- 51% of women in the UK have no form of protection **
- 46% of women in the UK believe it’s solely their responsibility to ensure their family has enough income should the unexpected happen to them**
Sources: *Sun Life, December 2016, ** Aegon, November 2016