Why people are dumping life insurance
The continued economic downturn means people have less money to spend on insurance, according to a new report. But this is a dangerous gamble
Sales of whole life insurance in the UK fell 57% between 2007 and 2012, largely because of weak economic growth and falling household incomes, according to a new report.
The total value of these policies fell from £56.5 billion to £24.2 billion, according to the report - Life Insurance in the UK: Key Trends and Opportunities to 2017 - by Timetric.
These policies, which have no term and can pay out on death at any point, have suffered at the hands of the recession as people can no longer afford to pay out for them.
Uncertain economy
Continued weak economic growth, high levels of unemployment and reduced consumer confidence have all been blamed for the fall.
This kind of insurance costs more than the more common 'term' insurance as it can pay out at any point, as opposed to paying out during a set time period, say 40 years. The policyholder pays a monthly sum - a certain amount of the money is invested into life funds, which means the total amount paid out and the monthly fee can change.
The report also predicts that this sector won’t pick up for some time, with premiums only predicted to rise by around 2.5% between 2013 and 2017.
Prolonged low interest rates and regulatory changes have also affected how these policies are sold and their popularity.
Investment and savings
The report also claims that these insurance products are facing increasing competition from the banking and wealth management sector through investments and savings products.
However, for a savings or investment product to become a real alternative, its value would need to be extremely high. For most people that's simply not realistic.
Mark Dampier, spokesperson for Hargreaves Lansdown, also points out that if you have no dependents then relying on an investment vehicle of your savings may be sufficient. But aside from these two scenarios, the need for life insurance policies hasn’t changed.
“Families need to ask themselves some simple questions, should one of us die, or become ill, can we financially carry on? In most cases the answer is no,” he explains.
If you answered no, chances are you need some form of life insurance.
The cost of life insurance
Term insurance premiums have been steadily falling in the past five years, despite a jump when the European Union gender directive came into force.
The price you pay will depend on your individual circumstances. Our life insurance comparison engine lets you compare quotes for different types of life insurance. For example, a 37-year old woman who doesn't smoke and wanted a 15-year policy which paid out £200,000 could pay anything from £8.36 a month, with Beagle Street, to £11.04, with Pru Protect.
The same cover for a smoker would cost slightly more, and LV= would charge £15.10 a month while with Bright Grey it's slightly higher at £16.27.
A joint policy can also be bought, although this will only pay out once on death. The cost here, again for a £200,000 payment and a 15-term policy, is slightly more and there is a poicy for £19.78 with Avivia, or £22.68 with Legal & General.
More on life insurance:
When you should review your life insurance cover
Life insurance: how much do you really need?
When life insurance doesn't pay out
How to pick the right life insurance policy
Life insurance for the over 50s
How-to » Get the right type of life insurance
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Comments
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Whole Life Assurance is inflexible. It is dead money, in that you will never see any return, so you are paying for the security - if you need it. Unless you have a Policy where the premiums cease when you retire, you will have to continue paying to the very end (average life expectancy is well over 80 now) and if you are not up to date when you fall under that bus, there will be no pay out, remember. I wonder how many old folk have gone into care and their policies lapsed? If you lose your job, it is yet another bill you have to keep paying. That can happen to the same individual several times nowadays. If you have had a medical event, you will find your Life premiums for any new Policy (already age -related, of course) will be loaded to the point where they become unaffordable, e.g. 3.5 times after a cardiac event from which you recover completely and survive 20 + years, but the same Life company will not give you much, if any, enhancement on an Annuity rate. Unfair, or what? Traditionally too, Life Assurance has had to be sold, as opposed to being bought, but regulation has made that much more difficult. Unsurprising these products have declined in popularity.
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Decreasing Term Assurance ought to be the way to go for most people, as it fits most people's life and dependants profile, but it's not prominently promoted, which I think is cynical reflection on the industry and those who ought to be highlighting the merits of this cover.
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@GaryDean There is just a tad more certainty involved when it comes to life insurance, don't you think? I might crash my car and one day my house may flood, but the inevitability of death does merit some planning and I agree absolutely with the comment that plans need to change as circumstances do.
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03 September 2013