Before the law began to closely regulate financial service businesses and before the welfare state was launched, organizations called friendly societies helped people manage their financial uncertainties. A friendly society is an association that is owned by its members (its members are not called shareholders, though).
Buying your life insurance from a friendly society
To get a life insurance policy from a friendly society, you need to open a savings plan with one. Their savings and investment plans come with inbuilt life insurance.
If you are okay with letting your life insurance policy run for at least 10 years, getting it from a friendly society comes with a tax benefit. You get to save up to Â£270 on your yearly premium. You get to go tax-free both on the premiums that you pay and the payout that you receive when your policy expires at the end of its term. You simply pay your yearly premium directly into your investment account with the friendly society.
A friendly society insurance policy only comes with these tax advantages on long-term policies. If you believe that you may not let your insurance run its entire 10 or 25 year term, a friendly society policy may not be for you. If you try to turn your policy in before its time, you will be asked to pay all the taxes that you were given exemption from over the period that you held your policy.
How do friendly societies fund the insurance policies they offer?
Friendly societies usually call their financial products savings plans. The premiums that you pay into your savings plans are invested in safe investments in the markets a part of your premium is set aside to fund a payout in case you pass away before the policy runs through its term or in case you close your policy prematurely).
The part of your premium that is invested in the markets can be problematic. Friendly societies tend to charge a very high investment management fee. This cost tends to wipe out some of the savings offered by the tax benefit.
When you first approach a friendly society for its life insurance quotes, you receive a full explanation of how their system works. They show you exactly what you are supposed to pay and what you receive if you should die, terminate the policy before its term is up and if you hold the policy for the full period. Since your premium is invested in the markets, you will also be granted a yearly bonus. Once you get a bonus for a given year, you get to keep it whether or not you let the policy run its course.
Where do you go for friendly society life insurance quotes?
Friendly society insurance policies are not as popular as they used to be. A change in the law made it impossible for them to sell their savings and investment products through building societies and banks. Friendly societies, though, are still allowed to sell their own products. Independent financial advisers are allowed to recommend them, too.
Buying an insurance policy from a friendly society can be easier and cheaper
Many friendly societies offer life insurance without going through the underwriting step. They tend to be cheaper, as well. The life insurance quotes at well-known friendly societies like Liverpool Victoria can be 25% cheaper than with other mass-market insurers like NatWest or Bupa.
If you wish to buy income protection instead of just life insurance, friendly societies are very competitive in this area, as well. In fact, these societies first came into existence for the very purpose of income protection. They are very well equipped to deal with this consumer need.
The only problem with buying life insurance from friendly societies is that different societies tend to charge very different premiums. A report in the Guardian demonstrates how these premiums can change by as much as 50% depending on which society you go to.
Should you buy your life insurance from a friendly society?
Experts tend to advise consumers to stay away from friendly societies when it comes to buying whole life cover. The fact that these policies are supported by market investments tends to make them less safe. For term life insurance, these societies are usually safe and very good value for money.
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