“To expect the unexpected shows a thoroughly modern intellect”.
If you’re unfamiliar with the works of Oscar Wilde, this is a memorable quote from ‘An Ideal Husband’. Without taking these words out of context, this phrase could also perfectly articulate the rationale for taking out insurance.
We buy insurance to protect us against unexpected loss and the things which are unpredictable but have a chance of taking place. Looking back through the history of insurance, there are stories of policies being secured against events that I would argue are highly improbable. In this article I look at one of the best instances of this, the unexpected data on the life insurance sector in the UK and cover the different types available for you.
A history of insurance
In 1971 Cutty Sark (a Scottish Whisky company rather than the ship) offered GBP1M in prize money for anyone who could capture the Loch Ness Monster. After announcing the prize, the company grew concerned this might actually happen and approached Lloyd’s of London to secure insurance.
This is one of many stories where events have been insured, and in reading made me consider the practical role of insurance in our lives. In doing so, I discovered some surprising data on the life insurance sector in the UK. Direct Line Group released data in 2022 which indicated Brits appear to have some reserve in taking out life insurance in the UK, with evidence of clear under insurance.
Statistics on insurance in the UK
Insurance can take many forms, and financial plans often include costs for insurance cover such as cars, homes and health insurance.
I would suggest that life, critical illness and even total and permanent disability have as much importance as other forms of insurance. This isn’t consistently part of financial plans, with underinsurance for life insurance evidently an issue in the UK. In 2023, the take up of term life insurance fell to the lowest level since 2017 according to the Association of British Insurers.
Direct Line Life Insurance stated only 35% of the UK population have a life insurance policy in place and they commented that their research suggests people expect it to be too expensive, however their study also showed that 42% of households admitted they did not know how much a life policy costs. They also noted around 6 in every 10 households agreed a life policy would benefit their family**.
More households in the survey (71%) pay for a subscription service than fund a life insurance policy. I have experienced instances where clients have been surprised an insurance premium is cheaper per month than a collection of subscription services they pay for such as Amazon, Apple and Netflix***.
Two main forms of life insurance
The collective data indicates underinsurance for life cover throughout the UK which would be substantially worse if companies did not provide group life cover. There are two main forms of life insurance currently known as term insurance and whole of life (WOL).
Term insurance is typically lower cost with policies operating on a pure risk basis, where you pay for cover with no value being accrued. These policies have a determined timescale and a date when cover will cease for the life insured.
Whole of Life policies provide life-long protection unlike the definite end date for a term insurance policy. This means beneficiaries will receive the insurance benefit regardless of when the life insured passes away. Premiums are typically higher than term-based cover and the policies can be more complex.
Critical illness cover
Life policies have the potential to incorporate riders such as critical illness cover. Critical illness is intended to provide a lump sum payment in the instance a defined major illness such as cancer is diagnosed. According to the Association of British Insurers (ABI) in 2023, UK insurers paid out a total of around GBP1.2 billion in critical illness claims. This represented around 89% of claims or around GBP70K per claim and has increased year on year with the greatest prevalence of payouts for people in their late 40’s.****
Insurance at Progeny
Life insurance is one of the necessary aspects of financial planning, although admittedly not the most palatable. Preparing for the unexpected can feel daunting, but providing a safety net for you and your loved ones can help to protect them should the worst happen.
If you would like to discuss the different types of insurance available to you, or your financial plan, please contact our team.
*Source : Association of British Insurers, 2024 – https://www.abi.org.uk/news/news-articles/2024/3/record-number-take-out-income-protection-insurance/
**Source : Direct Line group 2022- https://www.directlinegroup.co.uk/en/news/brand-news/2022/05102022.html
***Source : Direct Line Group 2022- https://www.directlinegroup.co.uk/en/news/brand-news/2022/05102022.html
****Source: Association of British Insurers 2024- https://www.abi.org.uk/news/news-articles/2024/9/protection-insurers-pay-out-record-7.34-billion-to-support-individuals-and-families/
Please note Ashley Jones is a Financial Planner based in Singapore.
Progeny is a trading style of The Progeny Group Limited and is used by various companies within the Progeny group of companies. The Progeny Group Limited is a limited company registered in England and Wales with number 09276612. The company’s registered address is 1A Tower Square, Leeds, LS1 4DL.
Important Note
The information contained within this document is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
This article is distributed for educational purposes only. This communication does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs.
The opinions stated in this document are those of the author and do not necessarily represent the view of Progeny and should not be relied upon to make a financial decision.
Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.
