Taking out protection is rarely on the agenda of the average person in their 20s. But with this age group often leading a more financially precarious life than older generations, the insurance industry needs to do more to boost take-up.
The Office for National Statistics’ latest Wealth and Assets survey highlights how few young people have a financial safety net in place. It found that while 26 per cent of respondents would run out of money within a month if they lost their main source of income, the figure increased to 48 per cent for those aged 16 to 24.
For these individuals, protection should be a key financial planning priority. At a time when money might be too tight to build up sufficient savings to see them through tough times, income protection and critical illness insurance can give the reassurance that, if the worst did happen, their finances would be secure.
Youthful advantage
From a cost perspective, there are benefits to taking out cover while young. Premiums increase with age but, as Rob Harvey, independent protection expert at Drewberry Insurance, explains, other factors can also help to keep premiums affordable.
“A younger person will often be in better health. This means they can lock in cover on better terms than someone who is older and may have developed health conditions,” he says.
Even without the potential for a less-than-perfect medical record to load an older person’s premiums, cover is much more affordable. According to figures from Drewberry, a 20-year-old would pay £20.26 a month for income protection to cover the average UK salary (£1,249 a month) up to age 60. Delay this purchase for 10 years and, assuming no changes to their health, the premium would have increased to £29.92. See Table 1.
Table 1: Premium examples of protection products
Policy type | Age | |||
20 | 25 | 30 | 40 | |
Level term insurance | £7.35 | £7.62 | £10.05 | £19.74 |
Level term + critical illness | £31.08 | £38.00 | £54.69 | £118.58 |
Income protection | £20.26 | £25.24 | £29.92 | £44.82 |
Notes: Quotes based on a non-smoking office administrator. Level term: £250,000 sum insured for 25-year term. Income protection: £1,249 a month benefit, four week deferred to age 60. Source: Drewberry Insurance. Copyright: Money Management
Although this is only a few pounds more, potentially at a time when salary increases may mean spare money is available, it pushes up the overall cost of cover. Taking the cover out at age 20, would result in a total cost of £9,724.80 – start at age 30 and the total cost would be £10,771.20, even though the term is 10 years shorter.
Future flexibility
Protection policies are also flexible enough to adapt to changing circumstances. Guaranteed insurability options enable a policyholder to increase cover up to a set limit without requiring further medical underwriting. This means that although the additional cover will be charged at a rate corresponding to their age, it would not be loaded for any health issues they may have developed.
Being able to lock in future cover at preferential rates is sensible says Mr Harvey, but he believes this is an area that is ripe for an update. He explains: “Guaranteed insurability options are dependent on events such as a mortgage, marriage or the birth of a child, but this is fairly limited, especially in today’s world. Insurers should consider building in more flexibility.”
Some insurers are already exploring this. As an example, on its new Plus income protection products, The Exeter includes a guaranteed insurability option that enables policyholders to increase their benefit on the third policy anniversary, and every three years after that. The maximum uplift is the lower of 20 per cent or £500, and identical to the increase offered for the more traditional triggers.
Reaching out
There are clearly advantages to taking out cover while still young, but interest from this age group remains stubbornly low. A variety of reasons are suggested for this, including the cost of cover, a lack of trust in insurance, and even the belief that they are invincible.
However, Iona Bain, founder of the Young Money Blog and Young Money Agency, says it is often down to something much simpler. “Young people do not even know what protection is,” she explains.
“This lack of awareness is an enormous initial barrier.”
It is easy to see why awareness is so low. Protection is often introduced when someone is buying their first home. But with home ownership no longer regarded as a life goal by an increasing number of young people, they can miss out on learning about protection. Similarly, the banking sector’s decision to step away from financial advice means this source of protection information has also dried up. Given this, it is important to find new ways to raise awareness.
Social interaction
For Kathryn Knowles, managing director at Cura Financial Services, social media provides the ideal medium to engage with potential clients of all ages. Her company is active on Facebook, Twitter and Instagram and has run bold campaigns to bring protection to new audiences.
These include a Game of Gnomes, where anyone completing the quiz was assigned a character dependent on their protection needs; a zombie infographic in the style of TV series The Walking Dead that outlined the protection needs of different characters; and a series of ‘human’ videos that see Ms Knowles sitting on her sofa with a cup of tea answering questions about protection.
Ms Knowles adds: “People want more humour. Insurers, and especially compliance, are scared to do anything different, but we need to find new ways to raise awareness of protection and gain consumer trust. We have been promoting the fact that the industry pays more than 90 per cent of claims for years, but consumers put more faith in the articles in the newspapers about claims being declined.”
There are some signs of change. In the US, Legal & General America launched SelfieQuote last year, enabling users to obtain a life insurance quote by submitting a selfie. Although further underwriting is required, this uses facial analytics technology to estimate details such as age and body mass index.
New messaging
As well as injecting some humour into protection, the sales message and product need to align to the younger generation’s values.
Ms Bain says: “Many young peoples’ goals are not about assets, such as owning a home. Talk to them about how protection can support ambitions such as travel or being self-employed. Make protection about enjoying life.”
Similarly, while a revamp of the guaranteed insurability options on plans may help to give products the flexibility today’s youth expect, a more fundamental overhaul of cover may be sensible.
Deepak Jobanputra, deputy chief executive at VitalityLife, explains: “Younger people want something now, rather than to have to wait for something they hope they will never need. Our experience shows that they respond better to the idea of buying insurance when they can see tangible benefits.”
His company addresses this by offering a comprehensive rewards programme. This includes a range of benefits that policyholders can use immediately, such as discounts on gym membership, coffee, cinema tickets and Apple watches. While some are clearly rewards, others also help the policyholder become healthier, which can reduce risk and benefit the insurer, too.
While the package was criticised as a gimmick when introduced, it is now widely regarded as a way forward for protection. Mr Harvey says that although the concept can be too complex to explain easily, clients definitely find it very engaging.
“I can see future products where the protection is almost peripheral to the other benefits. This could be really powerful, especially with the younger generation,” he says.
With young people at risk of financial disaster if they are unable to work due to injury and illness, the protection industry must help them access the cover they need. Finding a compelling product proposition and the right distribution strategy is key.
BIG NUMBERS
48%
Proportion of people aged 16-24 years who would not be able to make ends meet for longer than a month (Wealth and Assets Survey 2018, Office for National Statistics)
2.8%
Growth in income protection sales in 2017 (Swiss Re Term and Health Watch 2018)
30
Average age of a first-time buyer(Halifax First-Time Buyer Review 2017)
97.8%
Percentage of new protection claims paid in 2017 (Association of British Insurers/Group Risk Development)
