It’s easy to pay £10,000 over the odds on life cover

It could cost you far more if you buy a policy from a bank, or even direct from the Insurer, as opposed to using an Adviser.


Reading time: 15 mins

It’s easy to waste £10,000 when buying a life assurance policy from a building society or a bank. This is because the lenders – without advising the customers – can add their own top-up of as much as 50% to the price which is available somewhere else. Bizarrely, sometimes customers who go direct to the Insurer will pay far more.

If you add up the premiums over the term of the policy, the difference between the worst and best prices can run to many thousands of pounds.
In that case, where is the best place to buy your policy?
Sellers of life assurance and other similar covers such as critical illness fall into three main categories. The lenders, say building societies or banks, intermediaries such as Advisers or Brokers, and thirdly, direct from the Insurer. Not all insurance companies use these three channels, but many do.
Most building societies and banks have agreements in place with life insurance companies to sell their policies to customers with many having what is known as a “single-tie” arrangement which means they are restricted to selling products from a sole insurance company.

The Sunday Telegraph investigated single-tie deals by Nationwide Building Society and Yorkshire Building Society with Legal & General policies and also policies from Aviva sold at the time under a single-tie arrangement by Tesco Bank. * These companies were chosen because at the time they all offered online quotes.
They obtained quotes for £250,000 worth of life and critical illness insurance lasting for a term of 25 years for both a 30-year-old and 40-year-old man, both from the Insurers direct and the Lenders. By comparison they also requested quotes from a Financial Adviser* for exactly the same policies.

In many cases the results showed that both Lenders, and when even contacting the Insurers direct, charged far more than Intermediaries for identical life and critical illness policies e.g. a “decreasing-term” life insurance policy (see explanation below) charged £15.65 per month through an Adviser for a 30-year-old male smoker for £250,000 of cover whereas Nationwide (Legal & General) cost £18 a month, whist Legal & General through Yorkshire charged £23.66 which is a surprising 51% more than an Adviser for identical cover.

Whilst the monthly sums are quite small in monetary value, it is when comparing them over the 25-year term of the policy that the difference is quite staggering at an extra £2,403.
A “level-term” life and critical illness policy for the same £250,000 cover for a 30-year old male smoker cost £90.36 per month when purchased through an Adviser but when bought in a branch of Nationwide he would be charged around £95.
Yorkshire charged its customers 33% more for the policy than the Adviser at £120.55 a month. Again, comparing the difference over the 25-year term that’s a massive £9,057 with the Lenders and Insurers struggling to explain the extra premiums.
When the Sunday Telegraph questioned the Yorkshire Building Society as to why its members were being asked to pay a much higher price for the cover, a spokesperson would only say “We continually strive to ensure that all our products, including those we offer through third parties, provide the best overall value for our customers.”

A spokesman at Nationwide Building Society advised that the extra cost was down to advice being given by salesmen in branches saying “Nationwide offers high-quality protection, backed by face-to-face advice available nationally on the high street, at the same price as is available directly from the insurer. Seeking advice, particularly given the need for correct disclosure and completion of forms, is very important when it comes to ensuring customers gain the protection cover they require.”

Of course that raises the question as to why the cover is higher when bought directly from Legal & General, when no advice is given automatically. There was no clear answer with a L&G spokesman saying “We would encourage people to understand what they are buying, if they want advice or not and to shop around. As with any other industry, it makes sense to do this, both on the high street and online, to get the best price and level of cover that meets the customer’s needs. The cheapest price does not always mean the best level of cover or service.”
The difficulty for customers is that products from other Insurers are also priced in the same, confusing way.

At the time of the survey, Tesco sold Aviva life and critical illness policies which they rebranded as Tesco Bank policies. Whilst Aviva charged much more for its own products by some considerable margin, Tesco charged more than an Intermediary for an identical policy e.g. a 40-year-old non-smoker taking a level-term life assurance policy for £250,000 cost £23.08 through an Adviser, £29.85 through Tesco Bank and £35.30 when bought directly from Aviva.

Between the lowest and highest prices the difference over the term was an extra £3,465.
A spokesperson for Aviva stated that their prices reflected the distribution costs of the product to its customers and that they were comfortable selling their products at a higher price than other distributors as some customers placed a higher value on direct access and convenience of access to the brand over price.
However, customers who have bought expensive life and critical illness cover are not tied into their existing policies. An option is to switch to new cover that could give better protection for a lower price is available. However, this may be difficult if your health is poorer than when you first took out the policy, or you may now smoke, or there could be other changes in your circumstances which may mean you no longer qualify for the same cover.
A spokesperson for the Adviser at the time of the survey pointed out “Your bank or building society, or even your insurer, will not necessarily give you the best deal. In many instances, people who have an existing policy will be able to switch to a better-quality policy for a lower premium. This is particularly true for people who bought their policy before 2010 because policies have improved significantly since then.

“It is important to check the premium you are paying to see whether there is a better deal available on the market.”
Mike Johnson from Markland Hill Wealth said “Whilst this survey is a number of years old, the principles still hold good today. Indeed, since then, there have been a number of innovative products launched in the market including some that reward customers who maintain a healthy lifestyle with both incentives and reductions in premium so it is worth customers reviewing their current policies.”
Contact Markland Hill Wealth for an independent free review of your current protection. We will research the whole of the market to find a product that reflects your current financial circumstances and lifestyle. Get in touch through with the subject ‘Protection Review’ and we will contact you in the near future to assist you further.

Term cover – how it works

Life insurance is often sold alongside a mortgage, which is why banks and building societies are so well placed to offer it. “Whole-of-life” cover pays out whenever you die but is more costly. Term cover, which is more common and cheaper, pays a set sum on the death of the policyholder if it occurs within a fixed period, say 25 years.
The term is often linked to the length of the mortgage, typically 25 years.
A cheaper form of cover is called “decreasing-term” life assurance. The potential payout on death decreases over time, as the amount owed on the mortgage falls.
Borrowers can add critical illness cover to life insurance policies for an additional cost. Critical illness cover pays out if the policyholder suffers from a serious illness or death during the term of the policy. The tax-free lump sum received is often used to pay off a mortgage or other debts or to cover medical or household bills.

*Survey carried out in 2013
*Please note that Tesco Bank no longer offer life insurance.
*Financial Adviser – Highclere Financial Services