Is life insurance worth it?

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This is a guest post from Hampshire-based life insurance broker, Reassured.

Is life insurance worth it, (do insurers pay out claims?)

Firstly, let's deal with why we believe life insurance is a very good idea for the majority of people. (Okay, we would say that right, as we sell life insurance!) But, read on to find out why we say this.

Life insurance could protect your home (clearing the mortgage) if the worst were to ever happen to you.

This could allow your partner and children to remain in the family home and not be burdened with a crippling debt, or have to suffer the upheaval of moving house.

Did you know the average mortgage debt in the UK is £121,687[1]http://themoneycharity.org.uk

Other key benefits of life insurance could include:

  • Cover future living costs (food & drink, children's education, fuel)
  • Cover household bills (gas, electricity, water, council tax)
  • Fund funeral costs (£4,000 is the average cost of a funeral[2])
  • Provide an inheritance for dependents
  • Clear outstanding debts (car finance, loans, credit cards).

Research published by LifeSearch in 2017 suggests 26% of us spend up to £25 each month on takeaways and 25% up to £10 on takeaway coffee[3]. Did you know you could secure comprehensive life insurance for less than 20p a day?

Despite this, 57% of the UK don't have any life insurance, while astonishingly 11% don't know whether they have cover or not.

Stay-at-home parents need life insurance too

You might think life insurance is only necessary for the breadwinner of the family. After all, they earn the money to pay the mortgage each month. Wrong.

We believe it's equally as important to protect a stay-at-home parent with life cover too.

Think about the impact losing a stay-at-home parent would have on the family, not just emotionally but financially.

  • Who would run the home?
  • Who would look after the children?
  • Could you afford expense childcare?
  • Would you have to cut back on your working hours?
  • What impact would this have on your salary?
  • Who would take the children to school?……

A study carried out by Bidvine[8] suggests the salary of a stay-at-home mum is worth £80,000 a year. A life insurance policy can help protect this irreplaceable family figurehead.

Misconceptions affect decision-making

Research suggests one influential factor as to why people don't take out life cover is simply misconceptions among people regarding what it does and what it costs.

A range of sources, including Association of British Insurers (ABI), a report from Pacific Life Re, as well as insurers such as AIG, Zurich and SunLife indicate there's a significant gap between customer perception and the reality when it comes to paying out claims.

But is this fair and what does the data tell us?

Insurers pay out 98% of all claims

80% of people surveyed thought pay out rates were less than 80%[4], however according to data from The Association of British Insurers, (ABI) (ABI) the actual figure is 98%[5].

In a recent report from Pacific Life Re[1] when customers were asked why they think insurers decline claims, 58% answered ‘due to the policyholder not providing accurate information when they bought the policy'.

17% replied, ‘insurance companies always try to avoid paying out' and a further 9% cited ‘loopholes' or ‘insurance companies being too profit driven in general' as key reasons.

Of the 2% of unsuccessful claims, the main reason given was non-disclosure, (sometimes referred to as misrepresentation). This means the details given during the application process by the policyholder were not 100% accurate and therefore the insurer declined the claim.

£263 billion protection gap

1 in 4 breadwinners[4] in the UK and almost 50% of parents[6] don't have any life insurance.

This results in a staggering estimated cover gap of £263 billion[4].

It's clear that many in the UK are unsure of the cost of life insurance or whether it even pays out on claims.

These common misconceptions could help explain why ‘8.5 million people are without' any form of life cover[5].

Many also seem confused about the cost of life insurance premiums. Research from insurer SunLife suggests ‘that 47% of people have no idea how much life insurance costs'. While ‘people overestimate the cost of insurance by 394%'[7].

Be a hero

We believe taking out life insurance to safeguard the future of your loved ones is a truly heroic act.

Now we have dispelled some of the common misconceptions surrounding life insurance, why not seize the day and secure cover?

Allowing you to get on with the more enjoyable aspects of life, like enjoying your family, secure in the knowledge, you have a reassuring safety net in place.

Insurer pay out rates on claims


Sources:

[1] The Money Charity – http://themoneycharity.org.uk/money-statistics/51592/

[2] Money Advice Service – www.moneyadviceservice.org.uk/en/articles/how-much-does-a-funeral-cost

[3] LifeSearch – www.lifesearch.co.uk/health-wealth-happiness-2017

[4] Pacific Life Re – www.pacificlifere.com/content/dam/paclife_corp/pre/public/publications/pacific_momentoftruth_8pp_LOW.pdf

[5] Association of British Insurers (ABI) – https://www.abi.org.uk/

[6] Legal & General – www.legalandgeneral.com/life-cover/confused-about-life-cover/articles-and-guides/protection-life-insurance-poll.html

[7] SunLife – www.sunlife.co.uk/press-office/public-overestimate-price-of-life-insurance-by-almost-400-

[8] Bidvine – www.bidvine.com/blog/mum-salary/

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