Life Insurance  

Protection insight: Life insurance

Protection insight: Life insurance

One of the first things an adviser will aim to sell is life insurance. It could potentially be one of the most important financial products available, and when people are struggling to make ends meet, life insurance is a way of securing the future of loved ones should the policyholder die.

It is not a glamorous topic and people do not want to think about dying, so it is put off by many. But it is not a product that should be shied away from.

According to the Association of British Insurers (ABI), there are 387 authorised life insurance companies in the UK, of which 210 are UK-authorised and 177 are headquartered in another European country.

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According to the ABI’s latest figures, in 2013 there were 29.3m individual term, whole of life, income protection and critical illness insurance policies in force. In addition, there were 2.1m collective life policies. There were also 10.4m members of group life cover, group income protection and group critical illness protection schemes, of which 7.9m were life cover.

The figures also show £3.1bn was paid to 99,000 customers or families as a result of claims on their protection policies. Although sales as a whole have lowered over the years, 3m new individual and group protection products were taken out during 2013. And of all claims made during the year, 97 per cent were paid out – this includes 98 per cent of term life insurance claims and 92 per cent of critical illness claims.

Interestingly, life insurers detected 980 cases of attempted claims fraud in 2013, amounting to £11.8m.

The life industry is huge. By the end of 2013, insurers held £1.8tn of assets, of which £1.7tn was held by life insurance companies. Life insurance, quite simply, provides a policy which will provide payment in the event of death to protect a family’s lifestyle or cover any debts and everyday expenses such as funeral costs.

Choice of two

There are typically two types of life insurance: term or whole of life. Term life assurance provides coverage at a fixed rate for a limited period of time – usually this is the length of time left on a mortgage if the policyholder should die while paying off a house. Whole of life insurance is just that – designed to last as long as the policyholder.

Last year, Vitality – the new name for Pru Health and PruProtect – launched a flexible whole of life product called Life Cover, which is similar to whole of life insurance. It will, however, pay out should the policyholder be diagnosed with a terminal illness while covered. Otherwise, a cash lump sum will be paid to their family or someone else they have nominated if they die while covered. The product has prompted both Ageas and Zurich to say they are mulling similar products in the next few years.

One thing for sure is that the industry has been very competitive when it comes to premiums over the years. Kevin Carr of Carr Consulting and Communications, says before the Gender Directive came into play in December 2012, life insurance spent 30 years getting cheaper. Along with improvements in science, people are now living longer and it made life insurance cheaper by the year.