Life insurance deals bought on the High Street are ‘almost always’ more expensive than term cover and critical illness cover bought through an independent adviser, industry experts* revealed this week.

The comments came as Nationwide confirmed that it adds a 20% mark-up charge on life insurance cover it sells for Legal & General, its product partner for life insurance policies. Nationwide’s advisers are therefore limited to offering only L&G life insurance to their customers.

The same it true of advisers at the other High Street banks and building societies. They are tied advisers, limited to offering only the products of their own company. While Nationwide offers only L&G life cover, Lloyds TSB offers only life insurance by Scottish Widows, and Santander offers only life insurance deals provided by Royal London. In each case, the bank or building society adds its own commission to the life insurance it sells. Due to these commissions, and the limited product range the tied adviser has at his disposal, it is rarely possible to give a truly competitive deal that will compete with the best on the market.

Consumers fare little better by going directly to the insurance companies themselves, as no advice is given and, again, no comparison is possible with life insurance cover from other providers.

Even local insurance advisers are often multi-tied agents, who are again limited to the products of the small number of insurance companies they represent.

An independent financial adviser, however, will keep track of changes in pricing on a daily basis, and can check who are currently offering the best life insurance deals. This is known as a ’whole of market approach’, and it ensures that, by looking at the full range of life insurance policies currently available, the independent adviser can find the best life insurance deals for the customers.

 *Source: LifeSearch

A new life insurance policy now offers life insurance cover to those with existing medical conditions, those working in hazardous occupations, and those involved in extreme sports.

The life cover is branded as ‘Unusual Risk’ and is offered by Compass, a specialist insurer which has previously focussed on offering financial products to HIV sufferers.

Unusual risk offers life insurance, backed up by a specialist information service, to those with pre-existing medical conditions, and to those on a list of defined hazardous occupations.

These include construction workers working at heights, airline pilots, ambulance drivers, cabin crew, camera operators, farmers, fishermen, and HGV lorry drivers.

The Unusual Risk policy also caters to those who expose themselves to danger in their leisure pursuits. It covers those involved in abseiling, caving, hang gliding, mountaineering, parachuting, rock climbing, sailing, and scuba diving. These are activities which for most mainstream insurers have an extremely adverse affect on the cost of life insurance cover, increasing the cost of the life insurance premiums by up to 50% in many cases.

Alternatively, disclosure regarding dangerous activities is often dealt with simply by treating them as exclusions in the life insurance policy, so that death resulting from participation in the sport would not be covered.

The average UK household spends more per year on the lotto than on life insurance cover.

Only 41% of people in the UK have life insurance cover, while 68% of people play the lotto and gamble in various other ways. This means that while only 20m people in the UK have a life cover policy, some 34m gamble, according to Aviva.

The monthly average household spend on the lotto and on gambling is £13.80, while the cheapest life insurance cover can mean a life cover policy that costs just £5 a month.

Aviva claimed that, if most people believe they stand a better chance of winning the lotto than of benefiting from life insurance cover, they are sadly mistaken – and by a long way. Devoting cash to gambling, rather than to the best life cover, could be like ‘playing Russian Roulette with your loved ones’ security’.

While only 1 person in 14 million wins the lotto, 1 in 3 people die of cancer, and 1 in 5 people die of heart disease.

Aviva pointed out that we are much more likely to be killed by a shark (odds of 3.2m to 1) or be struck by lightning (258,000 to 1), than to land that elusive lotto windfall.

“People know that protecting themselves and their family is extremely important, but many people wrongly think it’s too expensive, and delay life insurance. People gamble in the hope they may win the lottery, but put off life insurance thinking it won’t happen to them, when it is one of the unfortunate guarantees in life,” said Louise Colley, head of protection at Aviva.

Would you like to learn more about life insurance cover? Make a life insurance enquiry or ring freephone 0800 678 5929 now.

The Aviva COTS (Cost of the Sibling) study found that with the cost of childcare for 2 children now almost £16,000 a year*, many spouses would be working ‘just to pay the childminder’ in the event of the death or loss of income of their partner. The only option would be to survive on state benefits, if no life insurance cover and critical illness insurance were in place.

For many 2-child families, the cost of childcare has already made it unattractive for both partners to remain at work, after the arrival of the second child. In Aviva’s study of 1,000 parents with 2 children, 4 in 10 families felt that continuing to work was an unworkable option and one which will be even less so, with the loss of Health in Pregnancy grants and other benefits in the June 2010 budget.

*Full-time nursery place for child under 2 typically £152 per week or £7,900 per year

Family Income Benefit Insurance is a lesser-known type of family life insurance cover which pays, not a lump sum, but an annual income to your family for some years after your death.

A family income benefit policy can typically cost 35% less than normal life cover, and provides your loved ones with a tax-free income every year until the life policy ends.

One benefit of family income benefit insurance is the gradual or staged nature of the payout, which ensures that there is no lump sum that can be ‘blown’ in one go, and makes the cover perfect for providing an investment for children in situations where a tragedy might deprive them of a parent.

“Family Income Benefit can be linked to school fees or the cost of home help for the surviving partner, if they have children that need to be cared for. The money continues to pay out until the end of the policy, which is until the children reach adulthood,” said Matt Morris, senior policy adviser at LifeSearch.

For an £8 per month premium for a family income benefit policy from LV=, a male aged 30 can currently obtain family income benefit insurance providing an annual income of £13,767 for 20 years, giving a total payout of £275,340, according to LifeSearch. On a traditional ‘lump sum’ life policy, the same premium would provide life insurance cover of £150,000 (from Royal Liver).

A woman of the same age would fare even better, as with family income benefit insurance her £8 premium would provide her family with annual income of £22,032 per year, or £440,640 over 20 years, compared with lump sum cover from Royal Liver of £221,631 at the same price.

Family income benefit insurance also provides the flexibility to commute the life insurance cover to a lump sum at the end, if preferences have changed. In that case, the lump sum payout would reflect the traditional life cover payouts in the examples above.

While the woman is increasingly the main breadwinner in the UK household, she fails to realise that this has created a need for her to take life and critical illness insurance, according to AXA.

Life insurance cover and critical illness insurance are the standard tools for protecting our income against illness or a tragic event. Despite this, women are failing to see their real value, AXA says.

Predictions are that by 2030, women will be the main breadwinner in 1 in 4 homes in the UK. Wage inequalities are also lessening, giving female earners a stronger position than ever before and also increasing their ability to buy life insurance.

For women with dependent children, AXA has found that 27% already pay the family mortgage, 30% are solely responsible for the main family bills, 25% pay for their children’s education, and 29% pay the childcare costs.

For women not working, the full-time ‘domestic engineers’ who take care of the children, their value to the household is £23,000, according to AXA.

However, only 38% of women have life insurance cover, and only 1 in 5 (18%) have critical illness insurance.

The figures also show why it makes such good sense for women to buy life and critical illness insurance – of those who do, 1 in 10 suffer a setback that enables them to claim before the end of their policy, according to AXA.

Of those breadwinners who do have insurance, most are woefully under-insured. The average value of their life insurance cover is £90,000 and their critical illness insurance £80,000, equivalent to cover just two years of the average working woman’s worth (which AXA calculates at £45,000 based on job salary plus real value of work done at home).

Critical illness insurance cover is an area where understanding the terms and exclusions of the policy is essential. The importance of knowing the exclusions in all types of insurance is in the news yet again again this week, as thousands of stranded holidaymakers find their travel insurance is invalid, because the eruption of the Icelandic volcano is an ‘act of God’.

Eyjafjallajokull (the Icelandic volcano) has several important lessons for buyers of life and critical illness insurance.

First, as with personal insurance in general, critical illness insurance claims depend on understanding what is covered by the policy, and equally importantly, what your critical illness insurance cover does not include.

All critical illness insurance claims stand or fall by the level of accurate information provided in the application. If your application for critical illness insurance cover did not contain the full information requested by the insurer, your critical illness insurance claim could be reduced or rejected by the company, who might say that they would have charged you a higher premium if you had disclosed details of an item in your medical history of which they were unaware.

All critical illness insurance cover lists a range of illnesses and conditions eligible for a payout. Customers contracting an illness that is not on their policy list may not be entitled to make critical illness claims.

Critical illness insurance cover is also evolving in step with advances in modern medicine. Certain procedures are now no longer as serious as they once where, and may therefore no longer be subject to critical illness insurance claims.

The occurrence of a specific condition may in itself not fulfil the preconditions for critical illness insurance claims, if the condition occurs in a mild form. Both heart attacks and partial blindess are examples of conditions which require a certain measurable degree of severity, before a payout is possible under the terms of critical illness insurance policies. With its PruProtect critical illness insurance policies, Prudential offers reduced payouts for milder instances of certain conditions and illnesses.

Failure to disclose full details of medical history is known as non-disclosure. This can be a simple error on the applicant’s part, rather than a deliberate attempt to conceal data. Even when inadvertently done, non-disclosure is a vital mistake to avoid in purchasing both life and critical illness insurance cover.

Personal insurance, both in terms of life insurance cover and critical illness cover, are particularly important for the growing number of single income households in the UK, as revealed in a new study published today.

The number of stay-at-home-dads has increased tenfold in ten years, now standing at 600,000 compared to just 60,000 in 2000, according to new data from Aviva*, and women are increasingly taking on the earning role among the 31% of UK households that now rely on a single breadwinner.

Aviva also revealed that, in  85% of houses with children, at least one parent has significantly reduced their hours, or given up work completely, to take on parenting duties and cut down childcare costs.

Parents who make the choice to have a single income household are particularly vulnerable to loss of income through critical illness or the unexpected death of a breadwinner, Aviva says. “We’d advise anyone with dependent children to consider the importance of financial protection for their family – particularly if they are relying on one income,” said Louise Colley, head of protection marketing at Aviva.

Life insurance cover can protect your family’s standards of living should the worst happen, and an independent financial adviser can work out how much life cover is needed, not only to replace lost income, but to clear outstanding mortgage repayments and other debts as well.

However, 1 in 4 men or 1 in 5 women are likely to suffer a critical illness, which they will survive, before retirement age. The loss of income during an extended period of illness can be offset by critical illness insurance, which pays a lump sum when the holder is afflicted by one of the critical illnesses covered by the policy.

*Source: Survey of 1,084 parents for Aviva by Tickbox.net, March 2010

You can calculate how much personal insurance cover you need with our life insurance planner or critical illness planner

Being a man  Life expectancy for men in the UK hovers constantly around 4 years below that of women. This means that men can generally expect to pay more for their premiums.

Dangerous occupations  You don’t need to be a stuntman to be classified as working in a dangerous occupation! Various insurers will also hike your premiums if you are a window cleaner or a farmer! There are, however, insurers available who specialise in high risk claims.

Being overweight  If you’re body mass index (BMI) is 25, you are overweight, and if it reaches 30 you are clinically obese. Both conditions raise your risk of heart disease and cancer, and will increase your life insurance premiums.

Bad lifestyle Smoking, or drinking more than the recommended limit of 30 units a week, will place you in the higher risk category, and cost you pounds in life insurance premiums.

Being older  Cover generally increases in cost, the older you get, because you are likely to be paying premiums for a shorter time. The good news, of course, is that buying life cover when you are younger is relatively cheap.

Extreme sports  These expose you to danger in just the same way as our window cleaner on his ladder. If you like skydiving, bungee jumping, or even skiing and windsurfing, you will pay more for your life insurance premium.

Having a medical history  Health problems in the past do, unfortunately, cost you in the present, when buying life insurance. Even conditions which don’t affect you, but which run in your family, will be taken into account.

Not shopping around  Buying life insurance cover from your mortgage lender, or simply failing to shop around, mean that you are unlikely to find the best life insurance deal. Using an independent financial adviser will ensure you can access the whole market, to find the product that is right for you.

Reviewable premiums  Some life policies offer low-cost premiums as ‘teasers’ to lure new customers in. However, these may be reviewable premiums which can quickly be revised upwards, once the policy is in place. A policy with guaranteed premiums may be a better choice, in the longer term.

Fail to disclose  Non-disclosure is where a client fails to reveal all the relevant facts in an insurance application. While insurers may not check details at the outset, they often do so later. Even inadvertent non-disclosure can reduce or even invalidate a claim.

Good financial planning should factor in the cost of raising a child from birth to age 21 as almost £194,000, according to data released by Zurich Assurance.

The figure is a guideline for those evaluating how much life insurance cover they would require, in order to meet their financial commitments to their family, when they die.

The exact total for raising 1 child was £193,772 at the end of 2009, according to Zurich.

The major expenses included in this total were:

Childcare £53,818
Education incl. university £50,240
Food £17,205
Clothing £13,281
Holidays £11,920
Babysitting £10,826
Hobbies and toys £10,313

Lesser costs were leisure/recreation (£7,415), pocket money (£4,144), furniture (£2,366), personal items (£1,037), and miscellaneous other costs (£11,207).

When calculating the ideal level of life insurance or critical illness insurance cover within your general financial planning, other existing or potential commitments must also be considered, according to Zurich.

Life insurance customers would also need to calculate other debts or borrowings, including outstanding mortgage repayments, loans, credit card owings, and car loans, Zurich said.

Replacing salary with life insurance

An alternative method is to plan life insurance cover so that it clears owings and replaces the customer’s salary for the family, to preserve their standard of living in the event of death.

For the main breadwinner in a household, on a gross salary of £20,000 per year, for instance, replacing that income would require life cover of £400,000, which could be invested to pay out at 5% per year.

Adding on this breadwinner’s debts, including the remainder of the mortgage, of £85,000, the ideal level of life insurance cover should, therefore, total £485,000.

The same calculation process would apply to the second spouse in the household, as follows.

Let us assume that the second spouse works part-time for an annual salary of £10,000. Replacing that income would require an investment of £200,000, paying out 5% per year. The same debt of £85,000 should then be factored in, to clear their debt and mortgage. The second spouse’s total life cover should, therefore, be £285,000.

Calculate your life insurance cover with our life cover calculator, make a financial advice enquiry online or by calling 0800 678 5929