Re-Assessing Life Assurance

Many of us are under-insured even though life assurance is cheaper now than it has been for a decade. Even if you already have sufficient cover in place, a new plan could cost you far less.

Many of us don't have enough life assurance in place to adequately protect our families.

Perhaps you have heard the term `Protection Gap' which refers to the shortfall in the amount of life assurance we have versus the amount the industry claims we actually need. The Protection Gap currently stands at a colossal £2.5 TRILLION and it appears to be widening every year.

Most of the life cover we have got is earmarked for repaying the mortgage should the worst happen. But what about other debts, living expenses, supporting children and so on?

You may not want to bother with life assurance if you have no financial dependants, but for almost everyone else it's an important consideration.

Cover may not cost as much as you think. The table below shows six of the most competitive premiums for life assurance of £100,000 (although you may need quite a bit more than this).

Six Of The Cheapest Level-Term Assurance Premiums

Source: Investment, Life & Pensions Moneyfacts. Based on guaranteed premiums. Premiums assume you are accepted on standard terms. You may be charged a higher premium depending on your specific medical history and personal circumstances.

As the name suggests, you are only covered for the term you specify. The term could last until you no longer have financial dependants and your debts are cleared. `Level' means the amount of life cover remains the same throughout the term.

To make cover even cheaper you could opt for decreasing term assurance but this is only really suitable for protecting a reducing liability, such as a repayment mortgage.

And the cost of life assurance has reduced over recent years as the table below demonstrates:

Cheapest Policies Taken Out Now Compared With Five Years Ago

Given these price falls, you could try to exchange your old life-assurance plan for a new, often much cheaper, one.

This makes a lot of sense for many people since the average cost of life cover has fallen by a 50% over the past decade. Remember, if you took out your original policy five years ago over a 20-year term, you'll only need a quote based on 15 years now.

There are a few warning points here. Firstly, if you're planning to cancel your original, pricier policy, make sure you don't do it until your new plan is fully set up and your cover is in place. You should receive a letter from your insurer when this is done.

Secondly, if your health has deteriorated since you took out your original policy or there has been any other change in your circumstances which could mean you're a greater risk to a life insurer, then you may find a new policy is considerably more expensive. In a worst case scenario, it may not be possible to get life cover at all. In these circumstances, you'll probably be better off leaving well alone.

Thirdly, there may be additional benefits, such as critical-illness cover, which you included alongside your life cover. It is possible that by switching to a new policy, the additional benefits which applied to your current policy may not be available, or only on less favourable terms.

You should keep adapting your life assurance to suit your changing circumstances, such as moving home or on the birth of a child. You can use our life-insurance calculator to get a rough estimate.

It's a common mistake to assume that, because you're five years older, a new policy will automatically be more costly. The term-assurance market has changed dramatically in recent years, so this simply isn't the case. People are living longer and therefore pose much less of a risk to term-assurance companies, which has helped to drive premiums down.

And hot competition is also reducing the cost to consumers as providers jostle for a decent market share. All you have to do is take advantage of these conditions while you can.

> Read more: Your Money Or Your Life Assurance.
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The comments above are the opinions of the author only and do not represent advice specific to your circumstances

This article has been approved and issued by Direct Life & Pension Ltd who are authorised and regulated by the Financial Services Authority.

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