The clock is ticking if you want to pocket a cheap life insurance policy before the gender directive kicks in.
Women across the UK could save thousands by taking out a new life insurance policy before 21st December.
That is the day that a bizarre EU ruling comes into force, preventing insurance companies from taking gender into account when underwriting various financial products.
This means that life insurance companies will no longer be allowed to offer cheaper premiums to women than to men, simply because women typically live longer - and thus are likely to pay more premiums during their lifetime. Annoyingly, this will increase women’s premiums by 15% to 30%, while only decreasing men’s premiums by about 3%.
And the bad news is, even though the law only comes into force on 21st December, some companies have started the process early. For example, Legal & General has already gone “gender neutral”, pushing up the price of its premiums for women by 23%. On the plus side, men are likely to get cheaper quotes from L&G.
Luckily, there is still time for most women to get a new life insurance policy at the current, cheap prices - but only just.
While it only takes a few minutes to apply for a new policy, it can take quite a long time for a life insurance application to be processed, especially if you have health issues.
So if you’re a woman and you want a new policy, you need to act fast.
I’m planning on being one of the women in the queue for a new policy. I’ve been meaning to get a new life insurance policy for a while now and this looming deadline has finally spurred me into action.
Why I need a new policy
My husband and I currently have a joint life insurance policy, which was fine when there was just the two of us. If either one of us died, the policy would pay off the mortgage, allowing the survivor to remain in the home. If both of us died, our estate could sell the property to pay off the mortgage.
But we recently saw the arrival of a new “financial dependent” - a baby girl - and that means our needs have changed. The problem with a joint policy is that it will only pay out once, on the first death. So if both of us died, there would only be one pay-out. Enough to pay off the mortgage, but not enough to cover the expenses of raising a child in the home in which we would like her to grow up.
So I have decided to ditch our joint policy and take out two single policies. With single policies, each of us will receive a payout when the other person dies, and if both of us should die at the same time, there will be two pay-outs. Effectively, you’re getting double the cover.
The costs compared
Both my husband and I are non-smokers in our early 30s and, at the moment, we pay £14.57 a month for £242,602 of cover, on a decreasing term. This means the amount of cover we have decreases every year, in line with our mortgage payments. At the end of our mortgage term (20 years from now), we will have zero cover, but we also won’t have any mortgage to pay.
If we simply ditch the joint policy and take out two single policies, I was pleasantly surprised to find there was almost no difference in the cost even though we would be getting double the cover. I used the lovemoney.com life insurance comparison service and in less than a minute discovered that the cheapest monthly policy for me costs just £6.62 from Aviva and the cheapest monthly policy for my husband costs £9 exactly from Legal & General. That’s a total of £15.62 - just £1.05 more every month (or £12.60 a year).
Taking the opportunity to increase our life cover
However, we’ve decided to take this opportunity to also increase the cover we currently have to £365,000 each. We want to make sure that if our child loses one parent, the other isn’t forced by financial pressures to return to work full-time, but can instead afford to go part-time if necessary. Without a mortgage to pay, it shouldn’t take a very big sum to ensure this is the case.
In this scenario, my husband’s policy costs £12.19 a month from Legal & General and my policy costs £9.08 from LV=.
That’s a total increase in our monthly expenditure of just £6.71, yet instead of one payout of £242,602, our daughter would receive £830,000 in the event of both our deaths. If one of us dies, the survivor will be able to pay off the mortgage and will also receive over £123,000 as a lump sum.
As it is a decreasing term policy, the amount of cover will decrease over time in line with our mortgage but it should always provide more cover than is needed to pay off the mortgage. And it is right that the amount of cover needed decreases as she gets older and needs less childcare.
I’m going to ahead and take out a new single policy for me from LV=. However, I’m going to wait until after 21st December to take out a new single policy for my husband, just in case prices come down further for him after this date.
I’m not going to cancel our existing joint policy until both new policies are set up. This will mean a slight overlap, but would be worse to have even a few days without any life insurance cover.
How about you? Are you planning to take out a new life insurance policy before or after the gender-neutral rates come into effect? Are you in favour of the change or not? Let us know using the comments box below!
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