Important Financial Decisions

For those with dependants and long-term financial commitments, life insurance can be a necessity to ensure that a person's death doesn't result in financial hardship for those who are left behind. However, depending on an individual's circumstances and the level of cover needed, the premiums payable can cause economic strain. With careful planning, it is possible to reduce the overall cost and also ensure that benefits on death are maximised.

If you have critical illness cover, which pays out in the event of contracting a specified illness, as well as life insurance, it may be better to combine the two. A life insurance policy with a critical illness option will generally be cheaper than having separate policies. Bear in mind that many life insurance policies will automatically include terminal illness cover that pays out when any terminal illness is diagnosed.

Having joint life insurance will be cheaper than having individual cover for two people. This will normally pay out on the death of the first policy holder only and is suitable if the second policy holder has no need of further life insurance. If further cover is required, there may be problems trying to arrange a new policy at possibly a relatively old age and this may well work out quite expensive.

Some whole life policies have low cost versions with reduced premiums. Such policies have a guaranteed level of cover where the amount payable on death is the greater of the sum insured or the basic sum plus bonuses. Certain policies have guaranteed premiums that never increase while others have reviewable premiums that start lower but will increase over time. Depending on how long the policy runs, this can result in much higher payments over the whole term.

Having a policy written in trust ensures that the proceeds go directly to a nominated person when a claim is made. This has no effect on the premium payable but avoids payment of inheritance tax by the estate, which can potentially be a large saving.