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.
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.
Legally action
But since the Gender Directive, an EU-wide legal act prohibiting both direct and indirect gender discrimination as a risk factor, premiums for life insurance have gone up – particularly for women. The Chart looks into the best buy premium for life insurance for a female non-smoker aged 35 in 2000, 2005 and then between 2010 and 2015. The figures from 2014 and 2015 are both for gender-neutral non-smokers at 35.
The premium from 2000 to 2015 has dropped , with a 35-year-old female non-smoker having to pay a minimum premium of £9.00 (from Scottish Widows), while now the lowest premium is just £5.95 (Beagle Street). It is important to note Beagle Street’s premiums for 2015 are much lower than the average. In January 2015, the next lowest came from Zurich Assurance and Aviva with premiums of £7.30 and £7.50 respectively.
For a woman wanting to buy life insurance, the best available premium in January 2012 would have been £1.47 cheaper a month than in January 2014, a year after the Gender Directive’s introduction. Mr Carr says the market took around six months to a year to recover and for prices to stabilise. Women are now seeing premiums decline slightly again, but men are the real winners of the Gender Directive, seeing much lower premiums since 2013. A non-smoking male aged 35 in January 2013 would have paid £9.42 a month (Beagle Street), but a year later would have seen premiums decline to £7.40 (Zurich).
Umbrella stand
Other types of protection product can come under the life insurance umbrella such as critical illness, long-term care and funeral plans.
Mr Carr says one trend the protection industry has seen more of in recent years has been advertising and marketing for life insurance products.
Everyone will remember the much debated Aviva advert starring Paul Whitehouse, and whether they are liked or not, these ads have an effect. “It is an advisers’s responsibility to talk about life insurance, and adverts make it an easier conversation starter,” Mr Carr says.
Last year, Beagle Street also had a much-complained about advert featuring a monster with the tagline “Life insurance can be a monster”. Elsewhere, Vitality has also launched a new advertising campaign featuring a talking dog which it hopes will provide better exposure for health and life insurance.
With the economy still an uncertain place for many individuals, the key now is to get people away from the stigma attached to talking about life insurance.
FIVE QUESTIONS TO ASK
1. What type of protection is needed?
Term life insurance is much cheaper, but does not pay out anything once the term is over. Whole of life insurance is more expensive and pays out to a family whenever the policyholder dies. Look into different options and see if there is a flexible choice.
2. Is the premium a best buy?
Look into different providers and see which providers will offer the best for the individual. Some policies may be cheaper but they may not be covered for as much.
3. How much cover is needed?
The policyholder needs to add up any debts they have as well as how much their other half or children will need to continue their lifestyle. Funeral costs can also be considered in the cover amount.
4 If buying a term policy, how many years does it need to be for?
The average life insurance policy is between 20 and 30 years. Depending on how much longer of the policyholder’s mortgage is left is key. If they should die before paying off the mortgage, their loved ones may be left footing the bill if they are not covered.
5. Is joint or single life better?
While it might sound better to buy a joint policy, buying two single life policies gives more flexibility. Importantly, a joint policy will only pay out once, on the first death, which will leave the second person on the policy without any cover. While it might be more expensive, it might be worth considering two single covers.
