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Is Life Insurance Something To Cheap Out On?

Life insurance is one of those purchases where it’s better to have it than not. It can be a difficult product to understand with so many features and terms. Once you know how it all works together, it becomes a lot easier. 

Understanding how it works should help you save money – right? After all, the older you get, the more expensive your insurance becomes.

Not quite – as you get older, the costs of your premiums might rise due to it becoming riskier to insure you (due to your susceptibility to illness or injury). But there are ways to navigate around it, such as by working out what kind of insurance premiums are better suited to your needs.

Stepped Premiums

Stepped premiums begin cheaper and get more expensive as you age. Their main advantage is that they are initially quite inexpensive. As you grow older, however, the costs to insure yourself grow considerably. 

They’re a suitable option for people who may not want life insurance for the long term, such as those who may be in a higher-risk job, but can become too expensive to maintain when you are older (and generally the point in life that you might need it most.

Level Premium

Level premiums are more expensive when the policy is first taken out, but do not increase as you age. Rather lifestyle factors can impact and change how much you have to pay (and will do so in line with inflation). This makes them cheaper in the long run, allowing for you to budget them in accordance with their relatively consistent amounts.

However, it does increase a little with inflation and often reverts to a stepped premium structure once you reach a certain age (usually 65). Your policy can’t be altered without resetting that premium though. which means if your circumstances change, your premium will go up permanently.

What Would Work For Me? 

If that’s what you’re asking, it should come down to one question – how long will you hold the life insurance policy?

Are you planning on having it for years to come? A level premium might be the answer for you as it should save you money over the long term.

But if you’re after a short-term policy or one that you’re willing to renegotiate your policy later on, stepped premiums might be a better option for you.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

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