With the UK economy in a deeper recession than previously thought and the cost of living still rising, people are trying to save money where they can. However, for many people choosing to go without life insurance is a false economy that could have dire consequences.
Most people are now aware of the necessity of making arrangements for their retirement and building a pot of savings where possible. However, life insurance products are not necessarily essential, but neither are they necessarily dispensable. It all depends on the circumstances of the individual consumer.
New research shows that single parent families are less likely to have financial protection in the event of death or serious illness. Unmarried parents and same-sex partnerships are amongst those groups are who are also less likely to have life insurance.
According to figures from Sainsbury’s Life Insurance, less than a third of households with single parent families, unmarried partners and same-sex couples are covered through life insurance.
Despite there being a 35.8% rise in the number of unmarried couples cohabiting over the past decade, only 31% of them are covered by life insurance.
One of the prime reasons why families might want to consider taking out life insurance is to protect their children financially in the event of death or a serious illness. A life insurance payout could offer financial stability for anybody you are responsible for who would otherwise be in difficulty.
The research also highlighted that the number of cohabiting same-sex families has increased by 40% over the last 10 years, yet only 23% of them are protected through life insurance.
Compare this to married couples where 50% of them have life and critical illness cover.
It’s not just parents with young children who might want to consider life insurance as an essential financial product. Further studies show that over 4.4 million UK adults rely on the financial support of their parents.
A growing number of over 21 year olds are turning to the bank of mum and dad to cover everyday living costs. This sets parents back an average of £2,103 a year. It isn’t until they reach the ripe age of 38 that parents expect their children to be fully financially independent.
As a growing number of parents expect to keep funding their child until this age, taking out life insurance could be more important than ever. The research found that parents spend an average of £175 a month on each ‘grown-up’ child. On top of this they are contributing an average of £9,476 to important milestones for each child. Parents will help towards further education, buying a home, holidays and weddings for their adult children.
It’s not just children that parents are responsible for, as their elderly parents might need care and financial support. The cost of elderly care is exorbitant and older generations can leave their adult children footing the bill. Research shows that 57% of over 75-year olds would prefer to have care services in their own home rather than go into residential care.
The final factor putting people off getting the appropriate life cover for their circumstances is the possibility of being mis-sold expensive and complicated products. The range of life insurance available is staggering but independent advice is always available to help you choose the right product. Just ensure that any adviser is truly independent and not working on a commission basis.
The Daily Mail has reported this week on the plight of many thousands of people who took out whole-of-life insurance for £10 a month in the 1990s but are facing impossible hikes in their premiums this year.
The design of the policy and the subsequent cost of provision mean that people at 70 years of age are facing significant increases in their monthly premiums. Some are suddenly being expected to pay £100 a month, making continued cover impossible for many.
Whole-of-life policies of this sort are more expensive than the usual term assurance people buy to cover specific costs such as their mortgage or while their children are young. Term assurance runs for a specific period. If you die during that time you receive a payout. If you die after the term finishes you receive nothing.
There are two types of whole-of-life insurance. There are policies which guarantee never to increase your premiums and then there are reviewable ones. The reviewable policies were designed so that in the early years you would pay very little for cover but it was always the case that after ten years the premiums would be revisited, then again at 65, and then every five years after that.
If at any stage the cost of providing the insurance rose, either because of personal circumstances or the performance of the investments, then the premiums would rise too. However, many people were never told that their premiums would ever increase.
According to a report in the Daily Mail, some 270,000 of those who bought the policies are now receiving letters explaining that their premiums are set to rise. Of those, thousands who bought this type of insurance in the early 1990s are also set to get news of a sudden rise in costs.
The difficulty for those facing an impossible increase in costs is that they can’t just cash in the policy, take back the investment returns, and make money from the product, because the performance of many of these policies has been poor, and instead of the thousands people were expecting, they could be left with just hundreds of pounds.
The good news is that customers can complain, first to the insurer and then to the Financial Ombudsman. Last year the Ombudsman saw 1,400 complaints about this type of policy, and the insurer or adviser is found to have been unclear in one third of cases.
In the event that the insurer is cleared, experts recommend customers accepting the losses and, rather than struggle by and potentially face another increase in five years, they should cash the policy in, buy term assurance if they need cover, and look to an ISA if they need some sort of investment.
This case illustrates the constant advice given to consumers when seeking life insurance. Read the small print, shop around for the best deal and, when in doubt, consult independent advice. If a product has been mis-sold then customers can recoup any losses in compensation, but if the customer is at fault for not reading the insurance policy correctly they will be fully liable for any losses incurred.
The insurance company Aviva has created a video for financial advisers, in partnership with bereavement charity Grief Encounter, designed to show how families are affected when a parent dies without life insurance.
The video is designed to take an “emotional approach” to show the importance of having protection in place as opposed to just using facts and figures and will be displayed alongside a checklist showing how advisers may use the footage to bring up the subject of family protection with their clients.
Aviva is treading a fine line in making the legitimate point that many customers would have more peace of mind if they had a life insurance policy in place but perhaps have not considered the options available to them or the consequences of continuing without cover.
The company must be very careful, however, not to cross the line and use the grief of family members of recently deceased persons as a sales tactic to shock unsuspecting members of the public into buying products they do not want.
A significant number of people in the UK are considered to be under-insured, leaving their loved ones to potentially face large bills or other costs in the event of sudden death. To tap this market, in February Aviva launched a range of support materials to help advisers raise the topic of protection with clients and announced it was re-running its TV advertising campaign on life insurance.
Aviva’s protection awareness campaign began in January 2011, with its national TV ad promoting the benefits of life insurance. This approach faces one large problem in that customers may decide that they do want life insurance but, when shopping around, find that they can get a better deal with a company other than Aviva.
However, the approach has clearly been considered a success and the new video builds upon it. Aviva are hoping that customers new to the life insurance market will increase their market share more easily than targeting existing customers of other companies.
At a time when families need even more security, not having financial security in place is a huge burden in their already troubled worlds. It is therefore vital that parents take those few minutes to make sure that should the unexpected happen, their loved ones are cared for.
Anyone looking to buy a life insurance policy should consider as many options as possible before making a decision that balances the right level of cover with an acceptable price. If you are unsure at any stage you should consult an independent financial adviser.
The ongoing economic uncertainty and return to recession means that households across the country are trying to cut back on their expenditure, manage their money a little bit better and cut down on waste. However, a survey has shown that, despite the financial hardship, people are still wasting money instead of spending it on essentials they actually need.
The result of the survey show that adults in the UK waste on average nearly £30 every month. Most of the respondents had no idea they were wasting so much before they set down to work it all out and it is believed that almost everyone would be the same.
Cities wasting the most money include Newcastle, where £43.90 each month is frittered away, followed by Cardiff (£42.80), Glasgow (£38.30) and London (£34.50) – all of which beat the national average of £28.90.
Men tend to be less switched on when it comes to keeping an eye on their spending, wasting more than £30 each month on non-essential items compared to their female counterparts who waste £27.30 over the same period.
The survey also revealed a direct correlation between how much we spend and how much cash we carry around. 10% of men keep between £75-£100 in their wallets, compared to just 4% of women.
Compared to how much people are wasting each month the cost of a life insurance policy is very cheap. However, it is certainly not money wasted. For people with dependents, young families or large mortgages to pay, life insurance can offer security and peace of mind.
You can currently get a £50 Sainsbury’s gift card when you take out a life insurance policy with them online, while rival Tesco is offering 3,000 Clubcard points when you get a quote by 15 August and go on to buy that policy.
Many other providers offer a wide range of incentives to those who take out cover with them, although your decision should not be driven by such gimmicks – focus more on getting cover that meets all your requirements.
Find out exactly what your dependants will need to have a comfortable life should you die and then get the right level of protection for the cheapest price. And if you have no dependants whose life may be impacted by your death, then income protection insurance or
critical illness cover are the best options for you.
UK Insurance giant Aviva has this week signed an exclusive five-year deal with Tesco Bank to provide life insurance products to its customers. The agreement will begin later this year and will cover the sale of Aviva’s core protection products, including life insurance and critical illness cover.
The products will be advertised in stores across the country but only available online via Tesco Bank and over the telephone. Customers will be able to choose simplified life insurance, over 50s life insurance and life insurance will critical illness cover.
This move comes as part of the Retail Distribution Review (RDR) which is changing the way that many financial services are sold. Tesco Bank is also expected to enter the UK mortgage market in the coming months although, ominously, the mortgage range has been delayed following technical glitches in moving its existing loan and savings products onto a new IT system.
Analysts have given the news a cautious welcome saying that the new partnership between Tesco and Aviva is good news for the consumer as there will be more choice of life insurance products and it will help the entire market grow.
The movement of simple, useful financial products onto the high street is being seen by many as an antidote to the overly powerful, deeply complex products that require specialist understanding and are blamed for leading many countries to the brink of economic collapse over the last decade.
A key component of this movement away from the closed, impenetrable and often misleading world of financial products is the role of independent financial advisers. It must not be the case that fraudulent selling practises of complex financial products gives way to mass selling of cheap but useless products.
Despite this new deal placing life insurance products on the shelves of Tesco near the groceries and other everyday items, consumers must remember that they should research the market thoroughly and ensure that they are getting a product that is right for them at a price that is right for them.
A report from a global reinsurance specialist into the UK market has revealed that Britain could be underinsured by over £2 trillion. With the continued demographic changes meaning that we are living longer and will have to contribute to our social care in old age, this is a very worrying development.
The Swiss Re Term and Health Watch 2012 shows a growing gap between the cover that’s needed and what is actually in place and this looks like it is becoming a long term problem in the UK.
The effect on the life insurance market of a population that generally lives longer is that the price of cover has fallen and yet so has sales. Analysts believe that greater longevity has given people more optimism about their own prospects, however the whole point of life insurance is protection from accidents that prevent people from living to old age.
Single parents, couples with children and those aged 35 and under are least likely to have life insurance, which is unsurprising news. However, single parents and couples with children are also the group that needs lift insurance more than any other to cover obligations and provide an inheritance in case of catastrophe.
The Swiss Re report concludes that the protection industry is faced with the challenge of better communicating to consumers how to alleviate the financial burden placed on families and dependants in difficult times. Too often the selling of life insurance can put potential customers off.
A healthy man, aged 35 and who does not smoke will pay approximately £2 a week for £100,000 of life cover lasting until he is 65. Yet sales of new term assurance policies were down 3.4% last year, with 1.488 million plans sold.
And sales of income protection plans – which provide an income if the policyholder is unable to work – fell by 0.2% to 110,472 policies. The gap for income protection cover has increased by 46% over the past ten years.
For life insurance, the gap (the shortfall between what Swiss Re says is needed and what is in place) is now £2.4 trillion, which is 20% up compared with ten years ago.
However, sales of critical illness and whole of life insurance last year were higher. In 2011, there was a 3.1% increase in critical illness sales and a 7.9% rise in whole of life sales. 551,382 critical illness policies and 400,682 whole of life plans were sold last year.
Critical illness insurance pays out on the diagnosis of a serious medical condition. The report says that the increase in sales of these plans could be down to “positive messages” about the percentage of claims that are paid out on critical illness policies which improve consumer confidence in these plans.
Whole of life plans are sold mainly to elderly people for use in estate planning or for funerals. They are a combination of life insurance with a small investment element and have been criticised for their regular reviewing of premiums charged and the sums assured.
The future of the life insurance market in the UK requires that firms are more open, honest and clear about what their products provide. However, consumers also need to be realistic about what they need and how much they are willing to pay for it.
According to a new poll by the Skipton Building Society, buying life insurance is one of the actions that show a person has become a fully-fledged adult. It was listed tenth among the top 50 indicators of being ‘grown up’.
However, the survey also confirmed that young people are finding it harder to achieve this and other basic financial goals that indicate they are now grown up thanks to the difficult economic climate.
The flagging economy had been blamed for blocking young people’s passage to adulthood, preventing them from making a transition by owning a home or getting life cover.
Nearly half of Brits think that young people today are unable to be financially independent until they are in their late 20s. This is not surprising given the increasing number of people still living with their parents because of high rents and unemployment.
When asked what shows a person has become a fully-fledged adult, owning a house topped the list, but as banks now require large deposits before approving a mortgage, it’s no wonder young people are finding it difficult to achieve this dream.
Other actions considered as top ten displays of adulthood include financially important things such as writing a will and paying into a pension, as well as social actions including watching the news, cooking an evening meal from scratch and recycling.
Although the survey didn’t go look at the deeper reasons for people assigning these things the ‘adult’ tag, acceptance of one’s own mortality and recognition of a responsibility to others should the worst occur would certainly suggest a more mature frame of mind.
Since so many youngsters are having to wait later to get on the property ladder these days, it is frequently when they become parents that they take this step. This emphasises the importance of life insurance to protect the remaining family members from the financial consequences of a sudden death which could potentially leave them homeless.
This latest study is another reminder of the inherent contradiction at the heart of the life insurance market. In times of economic trouble people often cut back on their expenses including the one which is more important than at any other time, their life insurance premium.
This blog has discussed previously how costs for life insurance could increase by 25% later this year as a result of a ruling from the European Court of Justice (ECJ). Analysts predict that the combined effect will be to add thousands of pounds to the cost of long-term life assurance and critical illness cover.
As the date for the changes get close experts are suggesting that anyone who may require addition life cover or who is taking out a policy for the first time should do so over the next few months before the changes come into effect in December.
Women look set to be the biggest losers from the equalisation of insurance premiums, regardless of the claims experienced. However, women reaching retirement with defined contribution or money purchase pensions will be offered higher annuity yields when insurers are prevented from punishing them for living longer by reducing their annual income.
Contracts already in place will not be affected by the changes, so it makes sound financial sense for people who want insurance to get it without delay. However, it would be risky to leave it too close to the December deadline.
Some high-value policies require a GP’s medical report, which can take several weeks to arrange and complete before the cost of cover is fixed. Older people and others who have suffered a serious illness are also likely to be asked to undergo medical examination, so that individual risks can be assessed more accurately.
Another factor to consider is that HM Revenue & Customs will change the way insurance companies are taxed with effect from next January. The effect of these complex reforms will be to prevent companies from using profits on their endowments business to subsidise general insurance.
Given the complexity of the products available and the time it can take to complete the arrangments, it is best to begin researching your options with plenty of time to identify the right solution for you and your family. For example, shopping around for the best annuity is likely to have a much bigger effect on your income in retirement than gender-neutral rate adjustments.
Customers can shop around for themselves easier than ever using the internet, although if you feel the need you should always consult an independent financial adviser before making any purchases.
None of us like thinking about our deaths, but when we get married or have children our responsibilities in life grow and we begin think about how our loved ones and dependents would get on if we were not around.
Life insurance plans pay your family a set amount to ensure their financial security if you were to die suddenly. It will not make up for the emotional pain but at a time when work, bills and other financial necessities seem unimportant, the payment can be a huge help.
If insurance is really about peace of mind, then this is the ultimate policy. The money can be spent however your family sees fit but it will most likely go towards major outgoing like funeral expenses, mortgages or school fees.
Whole life insurance covers a policy holder for the rest of their life so is the most expensive option as the insurer knows they will pay out eventually. However, many young and healthy adults decide against life insurance because the premiums can be expensive and the risk of death seems understandably remote.
However, in unfortunate circumstances that decision can leave young families – who tend to be on less steady ground money-wise – facing financial hardship.
Term life insurance is a way of not spending too much on cover that is likely not to be used. You buy cover for a certain number of years and the insurer does not pay out anything if you die once the policy is expired.
Our homes are likely to be the most expensive things we ever buy, and with house prices so high there are very few of us who can avoid taking on significant mortgages to buy them.
If you were to pass away would your family be able to continue repaying the mortgage? If not, mortgage protection life cover can be one of the most useful insurance policies you ever purchase. In the event that the insurer pays out the money goes straight to mortgage lender.
Critical Illness Cover Life insurance is invaluable to our families when we die, but it is an unfortunate fact that many of us will go through a prolonged period of serious illness before passing away. A stroke, cancer and illnesses which require round-the-clock care are not just emotionally devastating but can be financially devastating too.
Critical illness insurance provides protection against financial hardship by paying out a set lump sum when an illness is diagnosed. You and your family are able to spend the money on treatment, care or any other way you see fit. You can buy separate cover or bundle it with your life insurance or mortgage protection life cover.
If your family responsibilities have recently increased you may want to consider buying or amending a life insurance policy. It is important that you make the right decision and if you are unsure you should always consult and independent financial adviser.
The demographics of the UK are changing very quickly. Much attention has been paid to those already approaching pension age, but the increase in life expectancy of the younger generation is even more startling.
Figures from the Office for National Statistics say that a third of babies born in the UK this year will live to at least 100. For girls born this year, 39% will see their hundredth birthdays while 32% of boys will blow out 100 candles on their cakes in 2112.
According to a report in the Daily Mail there are currently about 14,500 centenarians in the UK but by 2035 this will have reached 110,000. New babies born this year can expect to live well into the next century.
There has been much debate about the effect this will have on the age at which we can realistically expect to draw on our pensions. Working longer is never going to be a popular policy option, however necessary it may be, as people have become accustomed to the idea of long retirements at the end of a working life.
Research by accountants PricewaterhouseCoopers says that babies born this year will not get their state pension until the age of 77 – and their own children will have to wait until they are in their eighties.
One benefit that has, so far, been mostly overlooked, in addition to the simple fact that we are living longer, is that life insurance cover will cost less.
Life insurance premiums are based on life expectancy which is why men pay more for cover than women – but if both sexes can expect to live longer, premiums should fall for both.
However, there is probably a floor below which premiums could not fall: currently you can get around £30,000 of cover for £5 a month if you are a non-smoker in your twenties. Realistically, there is little scope for price improvement without a fall in coverage.
Potential life insurance customers should realise that price is not necessarily the best determinant of cover that is right for personal circumstances. Certainly if your family responsibilities grow you should expect to increase your life cover accordingly.