Why life insurance can cost under £5 a month
For many of us, life insurance is an essential piece of protection. If you have someone who would lose out financially if you died, whether that's a child, a partner or an elderly parent that you care for, then quite simply you need to have some form of life insurance.
However, a significant number of us don't have any form of protection in place should we pass away unexpectedly. Research from the AA earlier this year suggested that as many as 60% of us don't have life insurance.
And one of the reasons most often given for not having a policy is the perception that it is expensive.
Protect your life for less than a fiver
However, the idea that life insurance is expensive is something of a myth. Let's take the example of a 25-year-old male non-smoker. He wants £150,000 of decreasing cover (more on that in a moment) for 30 years. With insurer Beagle Street, his life insurance policy would set him back just £4.65 a month. So that's less than a fiver to protect his loved ones financially should he die.
Even for a 35-year-old, looking for the same cover over the same period, the policy would cost less than a tenner a month; £8.45 to be precise.
Life insurance doesn't have to be expensive.
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What type of life insurance policy do I want?
Life insurance comes in a number of different forms. In the examples above, we've used a decreasing term policy. As the name suggests, with this type of policy the payout your loved ones would receive should you die gets smaller over time. This type of life insurance tends to be most popular with mortgage holders, as the payout decreases alongside their outstanding mortgage.
However, there is also level term life insurance, where the payout remains the same no matter when you die within the term of the policy. Level term policies tend to be a little more expensive.
With both of these forms of life insurance, you are only covered for a specified term. So if you have cover for 30 years, to last until you are 65, and you die at 66 then your family are out of luck.
However, there is also the option of whole-of-life insurance, which will pay out no matter when you die. This added certainty will cost you extra though. For more on how this works read Whole of life insurance cover: pros and cons.
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How much cover do I need?
Obviously, the more cover you have, the more it will cost. So if you want to keep your life insurance costs as low as possible, make sure you aren't overinsuring yourself.
You'll need to work out just what sort of financial hole you would leave in your family's budgets. So, for example, if you have children you may want to include some provision for things like university costs on top of typical monthly costs that you cover.
It's important to remember that this doesn't just apply to those in full-time employment. If you're a full-time mum, for example, your loved ones would have to cover the cost of childcare should you pass away.
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Stop smoking!
In our examples, we've looked at a non-smoking applicant. But if our 25-year-old was a smoker, his monthly premium would jump to £6.33 a month. Over the course of the full term of the policy, that extra £1.68 a month would come to an extra £600.
For our 35-year-old the increase is from £8.45 a month to £12.11 with Beagle Street if you're a smoker. That works out at an extra £1,317.60 over the course of the policy.
The fact is that when an insurer is considering your case, they are really working out how likely you are to die within the term of the policy. And if you do unhealthy things, like smoke, or if you're considerably overweight, then your premium will be higher as you're simply more likely to die and therefore require a payout.
So if you want to keep the costs as low as possible, try to cut out those unhealthy habits.
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Read more on life insurance on AOL Money
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How to buy the right life insurance policy
