COMMENT
Cheat Death - And Save Money Too!

By Cliff D'Arcy
December 15, 2005

"I don't want to achieve immortality through my work. I want to achieve it through not dying."

- Woody Allen

Two years ago, I wrote a tongue-in-cheek interview with Father Christmas in which Santa waxed lyrical on the benefits of being immortal.

Sadly, for us mere mortals, immortality is just a pipe dream. As one wit put it, "Health is just the longest way to prolong death." Indeed, I think one of the most profoundly human characteristics is that each of us knows for certain that we will die one day. For other species, ignorance is bliss!

So, although we can't put off the Big D, we can take steps to reduce its financial impact. If you're young, free and single and no-one relies on you for financial support, you don't have too many worries. However, for couples, especially those with dependent children, life insurance is essential. Here are five ways to get more cover for less cash:

1. "Re-broke" your policies

First things first: it's well worth checking to see if you can prune any premiums that you're paying for existing life and health policies. This applies all the more if you've bought cover from your bank or mortgage lender, because these are usually outrageously overpriced, as I explained in Beware The Rule Of Three!

Start with a visit to our Insurance centre, or try the specialist protection broker Lifesearch.

2. Shop around

When you buy life insurance, you're making an important long-term financial decision, because your policy could last, say, thirty years. This explains why it's vital to shop around for the cheapest (and most appropriate) cover, because even a small saving of say, £5 a month adds up to £1,800 over thirty years! What's more, discount brokers such as Cavendish Online and Fool partner The Idol will cut their commission to reduce your premiums, which is an added bonus. Also, other firms, including Lifesearch, offer a price-matching service, which means that you can't go far wrong.

3. Double your payout for just a few quid more

The majority of life insurance policies sold to couples are written on what's known as a "joint life, first death" basis. This means that two (or more) people are covered, and the policy pays out the sum assured when the first dies. After this, the policy lapses (ends), which means that the survivor is no longer protected. What's more, you can't divide up a joint policy if you were to separate or divorce, so this cover isn't very flexible, especially when it comes to estate planning.

Personally, I'd much rather pay a few pounds more each month and buy two separate policies: Best Buys for him and her. That way, if I die, my wife is still covered, so my children would receive a payout on her death. When it comes to life insurance, two payouts are far better than one, as I explained in Don't Make The Mistake Of Your Life!

4. Use trusts to avoid Inheritance Tax (IHT)

Frequently, the organisation which benefits most from someone's death is Her Majesty's Treasury. That's because the balance of your estate (which includes your home and other assets) over the Inheritance Tax threshold (£275,000 in the 2005/06 tax year) is taxed at 40%. So, an estate worth, say, £400,000 would be hit with a bill for £50,000. Ouch!

So, to avoid IHT, make sure that your life insurance policy is written in trust. For example, my wife's "death in service" cover from her employer is written in trust with me recorded as the beneficiary in her Expression of Wishes. Thus, if Mrs D were to pop her clogs, I'd receive a payout worth three times her salary, free of tax and outside of the IHT trap. It's a false economy to buy cheap life insurance policy while failing to consider whether it should be written in trust.

5. Buy Family Income Benefit (FIB)

When you're covering a mortgage or other debt, you need to buy life insurance that pays out a lump sum to clear the entire debt. However, you don't need to buy a lump-sum policy to protect your partner and dependents, because what you actually want to do is to replace your income, don't you?

Rather than paying steep premiums for a policy which pays out a jackpot-sized lump sum, you can dramatically reduce your premiums by FIBbing! Family Income Benefit is a far cheaper alternative, because it provides a tax-free income over a given period, rather than a one-off payout. In this article, I showed how a typical customer could halve their premiums by buying FIB instead of traditional term insurance. That could mean a saving of, say, £25 a month for thirty years, which comes to a handsome £9,000 reduction!

Finally, here's a bonus tip: make a Will (for a proper and professional service, only ever use a member of the Society of Trust and Estate Practitioners). If you don't, your estate will be distributed according to the intestacy rules, and you wouldn't wish that on your worst enemy, believe me!

More: Get quality quotes and cheaper cover in our Insurance centre | Protect Your Wealth.