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How much should you Budget for Life Insurance in 2024?

This is a good question, and one we are often asked as Life Insurance Brokers.

With rising household bills & pressed monthly family budgets in the Post Pandemic 2020’s, people are naturally looking to save money where they can. This is understandable.

Budget Life Insurance Quotes may start from £5pm from Leading UK Insurers. However, we will go onto examine here how getting a budget insurance life cover, maybe costly in the long run.

But let’s turn the question around and ask instead…

How much Life Insurance Cover do you need?

Money Saving Expert Martin Lewis on Life Insurance, his advice is for a good rule of thumb use the ‘THE 10 x RULE’.

Best Life Insurance Martin Lewis

After Cheapest Life Insurance in UK ?

After Cheapest Life Insurance in UK?

Martin Lewis Best Life Insurance formula is to aim to cover ’10 x the Annual Income’ of the highest earner or main breadwinner until any kids have finished full-time education.

Using that principle, if you earned £30,000pa gross, Martin says you should maybe consider insuring yourself (after any mortgage, loans & debts are repaid) for £300,000 life insurance (ie; 10 x the annual gross income).

Interestingly, he simply recommends insuring your gross income of £30,000pa – but not bother with net after tax income in this Martin Lewis 10 x rule budget life insurance example. 

Are Ordinary Workers Lifetime Millionaires?

Budget Life Insurance

Budget Life Insurance Reviews

Following on from this simple Martin Lewis example formula above, if you then worked for the next 35 years until retirement, you could potentially earn over £1 million gross ie; £30,000pa x 35 years = £1 million [or more with any future inflation wage rises].

As such, unlike the 10 x £30,000 gross salary life insurance example – you could instead protect your family with either;

  1. Income = £2,500pm or £30,000pa family income benefit lifecover policy
  2. Lump sum = £1 million level term life insurance policy [if invested @3% = £30,000pa]
  3. Or a mixture of the 2 policy types over the next 35 years – all dependant on your family circumstances.

Neither takes into account repaying any mortgages, loans or debts.

  • You can decide wether you want the cover to be level or inflation linked
  • Single plan | 2 x seperate plans | Joint life insurance 1’st claim | Lump Sums or Family Income Benefits options

Apart from losing a loved one, this real hidden income threat is what could be lost if the main breadwinner died prematurely. Or gives you an idea if someone was off long term ill the potential income loss.

Chances of making a claim | Life insurance budget review
*Stats increasing re Covid 19

So, as Financial Advisers we are not saying this ‘Martin Lewis formula’ 10 x annual salary is therefore a 100% one size fits all ie; not applicable for everyone’s own personal situation.

You may also feel this is either not enough cover, or perhaps too much for your own circumstances if you already have say death in service cover & if on a budget for life insurance?

So, I would re-summarize the Martin Lewis formula.

Life Insurance | Martin Lewis Money Savings Expert That is to ideally ‘Protect 3 Things’…

  • LUMP SUM > Repay any mortgage & debts, cover funeral costs
  • INCOME > Help cover all your monthly bills
  • LUMP SUM > Back up for holidays, education, emergencies

This basic formula is naturally dependant on wether you are cohabiting or married, have young or older dependants, retired or both working still. Have sufficient backup already in your investments & savings.

Ultimately, enough life insurance is also down to your budget. This calculation could also be made harder due to any pre-existing health or lifestyle issues, meaning possibly higher ‘rated insurance premium’ costs. Contact us for personalized advice.

3 Ways to Buy ‘Budget Life Insurance’

The online life insurance marketplace is such that often buying what appears to be the cheapest budget life insurance cover, sometimes could work out the most expensive, in more ways than one.

So let’s look firstly at the 3 ways you can buy life insurance on a budget.

1] Execution Only Sales

MSE suggest the cheapest budget insurance life cover option is often via an online ‘execution only‘ discount broker. Here, you must pay a Fee to the Company to access their services ie; It’s not free a service.

However, note if still trying to maybe get the cheapest budget life insurance, then it also means you won’t get any advice to speak about ie; No comeback if what was chosen by yourself, direct via any website, was maybe appropriate to your ongoing situation. For example, you take out cheap budget life insurance mortgage protection to cover an interest only mortgage. Or you don’t advise a familial history of blood pressure or cholesterol.

2] Non-Advised Guidance

Then there are also other life insurance sales agents they mention who may operate as FCA regulated brokers but via non-advised sales. Now, this part gets abit more confusing.

Although you are now speaking to someone this time about your budget life insurance quotes, actually again you won’t be getting any advice. You only just get information & guidance from their Sales Agent for you (not them) to make a more informed decision on the policies available you have then chosen to take out ie; No real comeback if your chosen plan was later found inappropriate to your longer term needs. For example, you take out a fixed period level term policy to cover your interest only mortgage.

There are plenty of large Life Insurance Brokers online offering ‘information guidance only.’ eg; Protect Line & Reassured, mainly operate via non-advised sales.

life expectancy uk calculator
life expectancy uk calculator

3] Advice

Finally, there are ‘advised brokers or financial advisers’, who as the name implies give advice. A Financial Adviser will fully assess your own personal situation, then document this to you in your demands & needs report. They will advise you after their research why they recommended the particular Insurers plans & benefits.

They can either cover & address every aspect of protection needs or alternatively just look at a few particular areas eg; you just wanted to discuss both your family life insurance & mortgage critical illness protection shortfalls for now. Later down the line, budget permitting, your adviser could then re-look into any highlighted income protection shortfalls.

Conclusion

If you do contact any of these companies before you buy, make sure you’re clear on whether you’re getting ‘no advice’, ‘advice’ or just ‘information guidance’.

We leave that thought with you, which of the above 3 services maybe more appropriate to you & your family.

Generally, any broker commission cost of services are paid direct from the Insurers. So for you as the customer, your budget life insurance deals are usually the same for either a ‘fully advised’ or ‘non advised’ guidance purchase.

‘5 Life Insurance Need to Knows’

1] Low start policies, Health Assessed plans & Guaranteed 

A comparison or direct website shows a cheap budget insurance premium & you see the word ‘guaranteed’ noted by all premiums.

You may assume all the plans quoted as guaranteed are all the same? Wrong.

Some Insurers offer these Lower start policies where it says their premiums are ‘guaranteed’ – but the only thing that’s guaranteed is that the reviewable price will go up annually or regularly in line with an Insurers guaranteed age-based formula. This could work out the most expensive policy in the end.

There are also some Insurers like Vitality Life, that offer ‘healthy living’ assessed plans through regular exercise & health reviews. These reward you if you maintain a regular healthy lifestyle. However, although this is naturally a good thing, your premiums could go up as well as down ie; if you don’t regularly engage with their Healthy Living programme or are unable to, your monthly premiums may then increase.

Fixed premiums are ideally the way to go only if you prefer to operate on a fixed life insurance budget or don’t want to be regularly re-assessed.

2] Waiver of Premium

This extra cost benefit helps cover or ‘waive’ your premiums if your income is threatened through hospitalisation, accident or illness due to say cancer, heart attack or stroke. In this instance, the Insurers help pay your premiums in your recovery to ensure the policy is not cancelled & your valuable insurance cover terms remains.

On some cheap budget life insurance plans, waiver of premium is either not available or only after a 6 months wait, which is a long time if you have a reduced income. On some Insurers plans, waiver of premium is inclusive rather than paid for. This often ignored feature could be a game changer?

3] Critical Illness v Terminal Illness

Terminal Illness means ‘incurable’ re life insurance policy terms & so is often included for free ie; have less than 12 months to live.

Critical Illness is a policy that pays out on survival of diagnosis of specified serious illness.

You are perhaps looking to save money on your existing life policy, as their premiums sound expensive against what your mates advise they pay.

Your policy includes critical illness which sounds like the same as terminal illness? You look online & see much cheaper premiums for a budget life insurance policy with FREE terminal illness, which you think has the same thing.

So you go ahead and cancel your old critical illness plan. Only upon being diagnosed with a cancer, heart attack, MS or stroke do you then sadly find out that your old critical illness plan may then have actually paid out. Your new plan may only payout if you are diagnosed terminally ill ie; have less than 12 months to live, so you receive no payment. Unfortunately as brokers we say people often can misunderstand insurers jargon terminology.

Note: To include lifecover and critical illness benefit onto your policy is on average 4 x the price of life insurance. Terminal illness is usually included for free.

Budget Life Insurance and critical illness v terminal illness

4] Disclosure

As brokers we are sometimes asked….How will the Insurers even know if I just smoke the odd cigarette a week or maybe occasionally vape, when their ‘smoker rate premiums’ are so much more expensive – if I tell them I don’t?

What happens if I didn’t tell the Insurer about having any familial disease, what ever that means? We just need to get our life insurance budget deal issued immediately, as we are going away. I don’t bother telling my doctor about any family issues but I am sure everything is all okay, so I don’t need to worry.

The Insurer may not necessarily request any medical health tests or write to your GP upfront, to query your underwritten insurance application when you apply. However, they will probably do so if a claim comes in, to fully assess the validity of your situation.

When buying any type of insurance, it is always based upon your honest disclosure at the time

Note; The Insurers should always send you a copy application of what you initially disclosed, for you to then carefully recheck. If you think anything is wrong, then you need to advise them asap.

The original death certificate once requested by the Insurers may then highlight that it was caused by ‘smoking related factors.’ Alternatively, it may point to the fact that a heart attack from someone at such an early age in their 40’s was likely due to their ‘hereditary health history’ issue of familial heart disease.

The last thing your family would ever want, at their worst moments, is to have to be told by the Insurer the your death claim is now sadly invalid. That the information you gave at the time was found inaccurate ie; misrepresentation.

Life Insurance Disclosure

Remember, if you are paying say £23pm to ‘correctly insure’ or just £13pm ‘maybe incorrectly’ for £250,000 life insurance, then who has the GREATER RISK ?

The Insurance Company who may have to pay out a large death claim …..or your Family because they unfortunately didn’t !!! unhappy face

5] Insurance Misrepresentation

The Financial Services Ombudsman can if requested look into a misrepresentation claim. They will check if an Insurers questions were fair & accurate eg; Have you smoked or used any type of cigarettes or tobacco products, nicotine replacements or vaped, wether or not these contains nicotine, in last 12 months ? Yes/No.

Would the Insurers have acted differently if given accurate information at the time of application and been fair in the way they handled any misrepresentation re any non disclosure.

The simple answer is tell the truth, the whole truth & nothing but the truth… otherwise it may not payout !


Types of Life Insurance

There are 2 main types of Life Insurance for those on a budget:

1] Term Insurance

Term Life Insurance is a simple plan that pays out a cash sum if you die during the fixed time period your policy runs for. The sum paid out on death stays level for family life cover or decreasing for mortgage protection. The premiums remain level whether you are near the policy beginning or end. Most plans also include free ‘terminal illness’ cover. You can choose options of a lump sum or family income benefit & also if you want your cover to be inflation proofed.

The longer the level term insurance runs, then the more expensive it costs ie; 40 years term maybe double or more the cost than 20 years, as the insurance risks are higher as you get older. You can take a term insurance plan upto age 90.

2] Whole of Life Insurance

Whole of Life Insurance policy, always pays out if you die ie; whenever (as long as you’re kept up with monthly payments). For those on a budget, this maybe the most expensive compared to term insurance, as it will always payout.

Note: Over 50’s Lifecover asks no medical questions, so could always be a choice if you have bad health issues as life insurance budget deal.

Consider placing the policy into trust to help avoid probate or Inheritance Tax IHT issues.

Joint Life or Single Life Cover?

  • Single life insurance is setup on the sole life & death of a policyholder
  • A joint life 1’st death insurance policy may pay out on the death or claim on that 1’st policyholder. Then it ends.
  • Joint life assurance 2’nd death pays on last death eg; This may usually be used for Inheritance tax cover
  • Insurers may setup a joint life plan to repay a joint mortgage
  • Family life Insurance cover may be setup either joint life 1’st death or 2 x single policies or ‘dual life’

Budget TIP: 2 single or separate life insurance’s are often more costly, as they may payout twice

What does putting a Policy into Trust mean?

  • Putting the policy into ‘trust’ may help to avoid probate delays & Inheritance Tax IHT – by falling outside your estate.
  • Ensures it should go direct to you nominated beneficiaries via the trustees
  • This applies even if you have made a valid will.
  • Without a trust the policy could fall back into your estate
  • Inheritance tax is currently 40%. So it could be for larger estates, the life insurance payout is then reduced by this amount.
  • Most Insurers do supply free a good range of generic life insurance trusts, ideal for many client situations

Budget TIP: Insurers can help setup a generic protection trust. If in doubt, we suggest you seek legal advice

Which is the Best Budget Life Insurance 2024?

  • There is no set answer to this question, as given various types of life insurance, the devil is really in the detail.
  • What type of policy is actually required ie; cover for your Mortgage, Family or Funeral Costs etc ;
  • Or you have health issues, your job or pastimes are considered a high insurance risk, then each Insurer may view & charge differently
  • So the cheapest Life Insurance in UK quote isn’t necessarily the best, as it may have age costed annually reviewed increasing premiums
  • Ignore advertised Life Insurance with Free Gifts deals, as they generally could be £1,000’s more lifetime expensive

Conclusion

A Life Insurance Budget policy may not always be the best. It could be unsuitable to your individual case circumstances, rather than all being about budget.

Article on ‘Budget Life Insurance’ by Martyn Spencer Financial Adviser (2024)

For reassurance re health for men & women we review many of the best Life Insurers selling comprehensive & budget Life Insurance in UK (inc NI)

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