Life insurance now cheapest in eight years
Life insurance has got even cheaper, but momentum is pointing to rising prices in the not-too-distant future.
I worked up to 2005 in the insurance industry as a consultant, claims manager and paralegal, and noticed in that time a trend of falling life insurance prices. Since then, as far as I can see, prices have continued to shrink.
It's not been a smooth decline. During part of 2008 I noticed a small rise, for example, but by summer 2009 that bump had reversed dramatically. Now, eight months later, I find that prices have got even lower, although momentum has slowed as prices are just down a few pence. This could be the start of a big turning point, as I'll explain shortly.
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The cost today
Back in July 2009, a 30-year-old male non-smoker who wants his dependants to receive £200,000 of support if he dies in the following 20 years could pay just £10.05 per month for it. Today, such a 30-year-old would pay just £9.72pm, or 33p less. This makes life insurance the cheapest it's been in eight years, by my estimation.
The other good news is, getting a policy up and running nowadays is easier than it’s ever been. You can compare quotes online in a matter of minutes using the lovemoney.com life insurance service. Plus, if you take out a new life insurance policy with us by 7th April, we’ll give you £100 to say thank you for ‘being boring’. Find out more
Why premiums are shrinking
Most other insurances have been increasing in price and some dramatically so. Life insurance is different. Ever increasing life expectancies will continue to put downward pressure on life-insurance prices over the long run, as insurers need to pay out less and less. A bigger factor, though, is probably competition.
Consider the immense pressures on life insurers. There is a lot of competition from many strong firms. The pricing as a result has come so low that in 2008 they paid out £1.60 for every £1 they took in premiums. In 2007 they paid out £1.05 per £1 in premiums, and in 2006 £1.10. (I do not have reliable data for 2009 yet.)
Insurers don't mind making a loss on the premiums alone, so long as they can invest the premiums and make money on the stock market.
Jane Baker explains why life insurance should be your number one financial priority
Why it can't continue
However, in recent years investing has not worked out so well, leading to massive losses in the billions of pounds. Despite the market picking up again it is still way down on its highs. Furthermore, I reckon that the combination of strong competition and poor results are pointing to a likely turning point in what's called the 'insurance cycle', which means that something will soon have to give. Some insurers will have to fail or be bought out, competition will have to reduce, and prices rise again.
I can't call the bottom as there are a lot of complicated factors involved and I've been working with just snapshots of data, but I would expect that these problems have to resolve themselves in the near future. Perhaps the slowing of price cuts from 10% a year ago to just 3% today is a sign that the decline will soon halt and reverse. The big question then will be 'How fast?'
If I'm correct then there won't be a better time than around now to have another look at prices to make sure you're still getting a competitive deal. Although, as you get older, the premium you'll pay for a new policy will rise, because your chance of death has risen, the huge reductions over the past decade will mean that many people will still make big savings.
For that reason, I think it's worth comparing today's prices with your current policy before the insurance cycle changes.
Do ensure that you're looking for the right type of insurance. Life insurance is normally useful to protect your family if you die young. My favourite insurance, income protection insurance (aka permanent health insurance), may be more suitable and even more important for many people – but don't confuse that with payment protection insurance. Read more about it in Five ways to protect your income.
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Here at lovemoney.com, we know that sometimes it takes a little incentive to sort boring financial stuff out - and let's face it, life insurance is pretty boring. But it's pretty important too, so, until the 7th April, if you take out a new life insurance policy with lovemoney.com, we’ll give you £100 as a reward.
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