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Free life insurance... but there's a catch
For many of us, life insurance is an essential piece of protection.
If there is someone who would be left worse off financially as a result of your death, whether it’s a partner, child or perhaps a parent that you look after, life insurance can provide a valuable safety net to ensure they aren’t left out of pocket if you die.
However, it is possible to pay absolutely nothing for a year’s worth of life cover. There is a catch though…
New parent = free life cover
Legal & General has become the latest provider to offer £10,000-worth of free life insurance to new parents aged 18 to 45 for a year.
Asda Money also offers free life insurance for new parents offering £10,000 cover for each parent per baby. The cover runs from the day you apply up to the child's first birthday.
Asda's life insurance is underwritten by Aviva, which offers the same deal direct, as well as through other brands that it provides life insurance for like Tesco and Post Office.
Aviva offers free life insurance for new parents with its snappily-named New Parent Free Life Cover.
Of course, £10,000 isn’t a huge sum, particularly if you have a mortgage to worry about. And if you have a child, life insurance is not just a 12-month thing – you’ll need it for the long term. But as freebies go, it’s a pretty good one.
It’s not just parents who can benefit from life cover without having to pay for it though.
[Four major milestones that cost £887,000]
Death in service cover
Many employers offer death in service cover, a form of insurance which will see your loved ones benefit from a lump sum of around three to four times your salary should you die while working for the firm.
However, the amount you can expect to receive can vary significantly depending on where you work.
For example, while people working in financial services can expect an average of 4.63 times their annual salary, those who work in retail will typically get just three times their annual wage.
Of course, should you change jobs, the death in service cover you can expect should you pass away can change drastically, so always check your contract to ensure you know exactly what your loved ones can expect.
Keeping costs low
While these free forms of life insurance are a welcome boost to your protection, that should be all they are – an addition to your existing cover. It’s a dangerous game to rely entirely on the year’s free cover or your death in service benefit.
Thankfully standalone life insurance is a form of cover that you can get pretty cheaply - as little as £8 a month in some cases.
If you’re a smoker those premiums will rise. After all, you’re more at risk of dying, meaning the insurer is more likely to have to actually pay out on the policy. And if you get cover when you’re older, the premiums will rise too, as you may have developed a health issue or two.
But there are ways to keep your life insurance premium to a minimum besides simply buying it when you’re young and giving up the fags.
How long do you need cover for?
One of the main things to consider before you take out life insurance is how long you want cover for. The longer the ‘term’ of your policy, the more expensive it will end up being. That’s why whole-of-life cover – which, as the name suggests, will pay out whenever you die – is the most expensive form of life insurance.
Level vs. decreasing cover
So you’ve worked out how long you want to be insured for. Now you need to work out how much cover you need, and whether you want it to stay level or decrease over time.
Level term insurance is very straightforward life insurance. Whether you die in the first year or the last year of your term, your family will get the exact same payout.
Decreasing term insurance is popular with mortgage holders. As the name suggests, with each year that passes, the amount of cover offered decreases. The idea is that as you owe less on the mortgage in year twenty than you will in year one (hopefully, anyway) the amount of cover you need will also reduce.
This cover tends to be cheaper as a result.
Working out exactly how much cover you need is a tricky task though. You need to consider not just your mortgage and monthly outgoings, but also likely costs in the future. For example, you may want to bump up the level of cover you have in order to cover university costs if your children are likely to go.
Single vs. joint cover
If you and your partner are both arranging life cover, it makes sense to go for a joint policy, right?
There was a time when it worked out cheaper to do so, but now it’s actually more expensive to get joint cover. And it’s less practical – you only get a payout on the first death, whereas if you go for separate life insurance policies you can claim upon both deaths. A cheerful thought!
The key in all of this is to shop around and compare policies. You may get a cheaper policy from insurer A, but there may be more small print to consider than with the policy from insurer B. It’s really important that you don’t select your policy solely on which is the cheapest.
