If you are in the market for life insurance cover it may surprise you to discover a policy bought directly from an insurance company may not be the best deal either at the time of buying or in the intervening years between purchase and the end of term or payout. Buying insurance cover from a building society or bank also typically costs much more that an identical policy easily obtained through another avenue.
Using an intermediary such as a financial adviser when buying cover can save the life insurance purchaser over 51 per cent throughout the term of a policy. No matter whether a whole of life or term policy, the cost saving is significant, making consulting with and ultimately purchasing through a broker or intermediary the wiser choice.
Often life insurance cover is offered when obtaining a mortgage through the bank or building society financing the purchase. It is common to find that insurance available through this channel is only in the form of a “single-tie” arrangement, limiting the mortgagor to only offering a sole provider for a quote.
Examples of these kinds of insurance cover partnerships between financial institutions and insurers were analysed by the Sunday Telegraph. Aviva policies are aligned with Tesco Bank while Legal & General life insurance cover is sold through Yorkshire Building Society and Nationwide Building Society. The paper sought quotes for ￡250,000 of life and critical illness cover, using a 25 year term for both 30-year-old and a 40-year-old-man in order to compare the prices charged directly from the life cover company and the building society. Online software was utilized to obtain the prices.
To round out the investigation the Telegraph made an additional cover and price inquiry, this time through an independent advisor. Exactly the same terms were requested and contrasted with the proposals offered by the insurance company and financier.
The comparison of the three quotes over a variety of differing situations made it clear a policy obtained through an independent adviser was by far the best option. Both decreasing term and level term policies were analysed by the news source as each type of policy has its adherents.
Decreasing term life assurance policies cost less but as time goes by the amount of cover is less, paralleling the reduction in the mortgage principal as payments are made over the life of the obligation. Straight term life policies offer a set payout for a slightly higher periodic premium within a defined term, typically the life of a mortgage. A borrower can opt to add critical illness cover to the underlying policy, usually paid out as a lump sum to help meet a variety of debts, including the mortgage, medical bills or day-to-day living expenses, if the policy holder experiences critical illness or death.
The quotes compared for this level-term life insurance-only cover for a 40-year-old male who does not smoke varied widely. Aviva, the actual insurer, came in at the highest price point, charging £35.30 per month. Second in cost was Tesco Bank at ￡29.35 per month. The most affordable rate was through an adviser, only £23.08, more than a third less than the direct insurer rate and nearly a quarter less than the bank price quoted.
A 30-year-old man who smokes will pay ￡120.55 a month for a critical illness and life insurance level term policy from Yorkshire Building Society, considerably more than the insurance company, Legal & General’s quote of ￡95, Yet an adviser charges only ￡90.36 per month for the equivalent coverage, over £30 less than the mortgagee and £4.64 less than the company. Over a term of 25 years or 300 month the cost savings is impressive for those who use the adviser; the policy sold through the company will cost ￡1,392 more and Yorkshire will charge a shocking ￡9,057 more over the 25 years of the term.
Even the relatively less expensive decreasing-term policies deserve a look and an informed decision before an insurance cover is chosen. A 30-year-old man who smokes will pay the company £18, Yorkshire £23.66, or an independent adviser £15.65 per month for precisely the same £250,000 cover. If a home buyer is not doing smart shopping for the life insurance portion of a mortgage an additional £705 to £1,698 can be squandered over the lifetime of the cover.
It would seem to make sense that the higher quotes from the insurance companies and banks or building societies must be balanced by other amenities. In fact the banking industry tries to justify their higher prices based upon the advice and guidance offered through their staff of experts. This theory, tempting as it may seem, in no way explains why the direct purchase from an insurance carrier is even more expensive.
The added benefits when life insurance cover is bought from an independent agent defies the logic of purchasing at a premium price the same coverage from a bank, building society or the actual insurance company. A financial adviser or insurance broker who handles a range of different companies and their offerings is in the best position to find the perfect fit for each borrower. Rather than being tied to one company and its limited array of policies an intermediary can compare and contrast many possibilities and then help the customer narrow his or her choice according to his or her unique set of factors.
Although it can be said that the cheapest cover may not always be the most appropriate for the life insurance buyer, when the exactly same policy can vary so significantly in price depending upon whom is doing the selling it goes almost without saying that going with an independent adviser is the obvious solution. An additional benefit of working with an adviser is the opportunity to review the current policy at regular intervals. It may be that an independent intermediary can adjust coverage or change companies with no loss of protection but with the possibility of a premium reduction as the insurance market evolves and adjusts to changes in the economy. Little incentive to review and reduce will exist for the company or bank or building society.
Are you paying too much for your life insurance? Why not speak to our advisors or get a quote here.
We use a range of insurance providers and their products could be more suitable for your company. These articles are for information only and does not constitute as financial advice in any way.
Jody is the Managing Director and founder of My Key Finance Ltd. He has over 16 years experience as a protection adviser and is an authority within the UK business protection market. Jody has written articles for Business Matters Business Directory, and been featured in Forbes. As editor and Author of our blog Jody is hoping to educate and advise people with more in depth details and information on the various subject relating to the protection market.