Wednesday 23 January 2019

Save thousands with a new life insurance policy

Reassess your long-term policies to make big savings

Life insurance has the lowest incidence of consumers switching providers
Life insurance has the lowest incidence of consumers switching providers

John Cradden

Of all the services you could easily switch, life insurance and mortgage protection seems to induce a particular inertia among Irish consumers.

Recent research on switching behaviour by the National Consumer Agency (NCA) shows that out of 17 different categories, life insurance and mortgage protection has the lowest incidence of consumers switching providers. Just 3pc of those surveyed said they switched life insurance and mortgage protection provider, compared with 26pc for groceries, 23pc for car insurance, 16pc for gas and electricity, and 14pc for broadband and phone providers.

Yet research by the same agency shows that a couple could save nearly €5,700 over the lifetime of a dual term life insurance policy and almost €3,900 on a joint mortgage protection policy for a couple simply by switching.

As an example, a 33-year-old non-smoker could get mortgage protection cover of €250,000 over 25 years for around €15 and €20 a month, or term life insurance policy on the same terms for €20 and €23 a month. Whole of life cover, which is much more expensive, would cost this person between €160 and €220 a month.

These are long-term policies so what might seem like small differences in monthly premiums can result in a large saving over the term of the policy. A difference in a monthly premium of €2.79 for a 23-year-old non-smoker seeking term-life insurance cover over 35 years yields a €1,171 saving over the policy term.

So why are folks so slow to switch these products? "People are sometimes reluctant to shop around for their financial products," said Sara Murphy, senior marketing executive at insurance firm Royal London. "This can be because they feel a bit intimidated about a sector and products that they are unfamiliar with, or it may be because they are not aware that they can move to a different provider if they find a better deal."

There is a lingering perception that switching mortgage protection provider is difficult. A mortgage protection policy pays off your mortgage if you die during the term of the loan.

"Mortgage protection is usually a prerequisite to securing a mortgage and in most cases will be assigned to the mortgage lender, as security for the mortgage loan," said Ms Murphy. "However, all borrowers are free to take out their mortgage protection policy with whichever provider they choose and also have the same freedom to switch provider in the future."

There can be a little bit of hassle if your current policy is with the same bank or lender your mortgage is with. According to Bob Quinn of Kildare-based financial advisors The Money Advisors, if your original policy is with your mortgage lender and assigned to your mortgage debt, you will need to have a new cover in place before the old one can be cancelled.

"They will only release their beneficial interest in the original policy if there is one now in place to take over from it," he said. "Sometimes it can take a few weeks to get that process up and running and you may have an overlap of premium in one month for two policies."

Although the premium on a mortgage protection policy is fixed from the moment you take out your first policy, you might find that getting a new policy is more expensive 10 years later, simply because you are older and your family circumstances may have changed, much like life insurance.

However, if your lifestyle or your occupation changes for the better - in the eyes of insurers - then reviewing the terms of your policy and then comparing the market can save you a bundle. "If you were a smoker when you first took out your mortgage protection policy and you've kicked that habit for at least 12 months, you'd save a lot of money by re-applying for new cover as a non-smoker," said Mr Quinn.

Indeed, the NCA's most recent life insurance comparison showed that smokers pay on average a huge 85pc more than non-smokers for term life insurance and mortgage protection.

A change of occupation would have to be a significant one to merit a lower life insurance premium. "If you are, for instance, a charity worker who travels to exotic destinations, and later you find you're the CEO and you're unlikely to leave county Dublin again, there is potential to save," said Mr Quinn.

But if you are looking for better value on your existing mortgage protection or life insurance with identical terms, switching can save up to 15pc depending on your age and circumstances, says Ms Murphy.

How to switch life insurance and mortgage protection

Step 1

Review your current mortgage protection or life insurance policy and see if you need to adjust it to either increase or reduce cover depending on how your circumstances have changed or evolved since you first took out the cover. If you just need a ‘replica’ policy, then go online and obtain some quotes or make some calls to brokers or firms directly. If you do need to change or upgrade your policy, it probably makes sense to talk to a broker or financial advisor first to make sure your cover is appropriate. He or she could also arrange the new cover for you.

Step 2

Once you know what you need, contact a broker or insurance firm directly to arrange the new cover. This process should take about 30 mins, but sometimes, depending on your circumstances, you might be asked to go for a medical or provide new information, which might add a couple of weeks to the process.

Total savings

* €160 a year for dual term life insurance policy of €350,000 over 35 years for 23-year-old couple

* €110 a year for joint mortgage protection policy of €350,000 for 23-year-old couple

* €160 a year for 15-year term life insurance policy of €190,000 for 45-year-old smoker

* €75 a year for 15-year term life insurance policy of €190,000 for 45-year-old nonsmoker

Source: National Consumer Agency

* Total time estimated (below) is assuming you are buying more or less the same policy and without any complicating factors like fulfilling requests for medicals or other factual information

Total time: 30 mins

Irish Independent

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