Buying direct can save 20%
Life assurance is a strange product to buy because the cost of exactly the same policy can vary by 20% or more. It all depends how you buy it. The cheapest way is through an online broker, but for many people, paying a bit more for face-to-face advice is probably worth it.
Life assurance companies price their products off their huge database of mortality statistics, which now goes back 150 years. Over that period, life expectancy in Europe has steadily increased and is still increasing, which means life assurers need to charge less for the same amount of cover.
Most life assurers make similar assumptions about mortality and interest rates, the two key factors in setting premium rates. The rest is down to administration expenses and distribution costs. And the key variable is what they pay their distributors - supermarkets, insurance brokers, banks, websites. They all strike separate deals with the insurers for the commission they earn from each policy –which explains why you’ll be quoted different rates by these distributors even for exactly the same cover from the same insurer.
Since life assurance is a commodity product - £100,000 of life cover for 20 years from insurer A doesn’t smell or taste any better than that from insurer B, and all UK insurers are covered by the same compensation scheme – you might take the view that you’ll buy the cheapest. But that ignores the advice factor.
Planning the life insurance cover you need isn’t just about the rate. How much cover you actually need and the type of policy is also important. Critical illness is a more complex product than life insurance - the scope and cost of the cover vary a lot. And for couples, using trusts to ensure the cash is paid out immediately on death is also vital – something those selling at the cheapest rates may not do for you. So using a life insurance broker whose commission pays for this advice is probably a good idea unless you’re very clear about what you want.
