Six steps to cheaper life insurance

If you need to take out life insurance, you can save money by following these simple tips.

Life insurance (or assurance) is certainly a depressing topic. After all, we're talking about something that only pays out upon death - and your death at that! No wonder so many of us choose not to take any out - you pay out each month knowing you'll never see the benefit.

But for some of us it's vital. And the good news is, if you're canny it won't cost a fortune. Check out these tips and see how much you could save.

1) Do you need it?

First up - do you need it? If you have children or others who depend on you then yes, life insurance is important and you're doing the right thing.

If however you're a single man/woman with no dependents, who would benefit from the insurance should you die? Save your money! Alternative products such as Income Protection Insurance, may suit your needs more adequately.

2) Only pay for what you need

The most common form of life insurance cover is known as level term assurance. You pay a set premium each month for a set number of years and should you die in this time your dependents will be paid a lump sum.

Now, the price of your premiums will depend on the length of term and amount of cover you take out.

As a rule of thumb, most recommend taking out cover until your youngest child reaches a certain age - say 18 or 20.

But the amount of cover required is tricky to gauge and tends to depend upon whether you have a mortgage, other debts and what you class as a decent standard of living for your dependents.

Some suggest that a figure of thirteen times your annual salary should do it. Others think around £150,000 cover per dependent child should suffice. But of course, everyone is different with a different set of financial circumstances. This calculator might help.

But be aware of a common false economy - while a joint policy may be cheaper, remember it will only pay out upon the first partner's death. It's usually better to pay a little more and take out individual policies.

3) Free cover

But before signing for anything, find out what you're already entitled to.

Many employers offer life cover/death in service benefit worth three/four times their employees' annual salaries (some as much as seven times!) as part of their benefits package which is usually free.

And income protection insurance/critical illness cover is often included which if not free, is available at a cheaper rate than you'd be able to find yourself (large companies can negotiate more competitive rates).

4) Shop around

Once you're ready to apply for quotes remember that it's usually best to steer clear of advisers who are tied to a financial institution. Not only do they tend to be more expensive, but becuase they're paid on commission this may influence their choices.

Instead, use a comparison website to search for the best deal yourself. You can compare quotes from a number of insurers, and premiums are typically cheaper.

5) Change your lifestyle

And there are plenty of ways to slash those costs.

Premiums are calculated using your age, health, occupation and lifestyle.

If you can quit smoking the savings can be immense. Most insurers will insist on you having been free of nicotine-containing products for a year (or more) and may request urine/saliva tests to check. But once you can be classed as a non-smoker you could find your premiums as much as halve.

And if you can improve your health by losing weight you may be able to apply to your insurer for a re-evaluation for your premium payments.

What's more, some occupations attract lower premiums than others - for example a solicitor may pay less than a lawyer. If you can think of an alternative job title that still describes what you do, try entering it and see if your premiums reduce.

6) Choose a cheaper alternative

Finally, you can save money by bypassing life insurance altogether and choosing a cheaper alternative.

Decreasing term insurance has cheaper premiums, but be aware that the cover decreases over the term in line with your mortgage debt.

Alternatively, there is Family Income Benefit (FIB). Rather than receive a lump sum when you die, FIB provides a tax-free monthly income to your family instead. So rather than, say, a £300k life insurance payout, with FIB your dependents could receive £15k annually for the duration of the term instead.

FIB payments are index linked, meaning they rise with inflation, and as the total amount of money your dependents will receive can change (according to "when" during the term you die) premiums are cheaper too - in some cases half as much as term assurance.

And of course, there's nothing stopping you from mixing and matching - so an FIB policy could make up the shortfall remaining from the life insurance you receive from work.

Finally, don't forget that if you took out your policy a while ago, it you could save by re-brokering your deal.

More: 5 Dangerous myths about life insurance | Why stay at home parents need life insurance