Life insurance – the stats and facts you need to know

Life insurance – the stats and facts you need to know

- in Guides
old couple

Facts and figures make the world go round. Let’s face, er facts, there’s nothing we Brits like more than facts and figures and having access to an endless stream of stats. From being avid viewers of TV quiz shows to being a country slightly obsessed with pub quizzes, here in the UK we just love to find out precisely what’s what, when’s when, where’s where, why’s why, etc, etc.

Or at least, it is when we’re not obsessing over the weather. It’s one of those peculiarities which makes us quintessentially British we guess. Now, while fun facts and figures surrounding a myriad of varied topics might excite us daily, the concept of insurance bringing anything to this stat-crazy party might be difficult for some people to get their heads around. After all, the two words ‘insurance’ and ‘industry’ when appearing in the same sentence don’t normally get our pulses quickening, but that’s not to say that insurance isn’t bursting at the seams with its own compendium of trivia.

For a kick-off, it’s a fairly safe assumption (although we could be doing you a mis-justice) that many people weren’t necessarily aware that the very word ‘insurance’ dates back to the 15th Century and believed to derive from the Anglo-Norman word, ‘enseurer’; literally meaning ‘en’ (make) and ‘seur’ (sure).

A century later and the word ‘insurance’ was widely acknowledged as referring to what it does today, after usurping its previous – and somewhat archaic predecessor – ‘assurance’. Historical factoids aside though, and bringing us right smack, bang up to date, we bet you didn’t know that the UK is officially recognised as the biggest insurance industry in Europe and the third in the world? And employs some 320,000 people (that’s almost twice as many people than are employed in the gas, water and electricity supply sectors – combined!) and is estimated to generate in the region of £1.8trillion (yes, trillion!) worth of investment, effectively making the insurance industry responsible for the equivalent of 25% of Great Britain’s total net worth. Impressive, eh?

You want more? OK. How about this then. It’s been calculated that just under 1,000 authorised companies can sell general insurance products, while it’s a proven fact that 90% of the 26million plus households across the UK have at least 1 insurance policy to their name. Admittedly none of these actualities are what you might call sexy, despite benefitting from a certain wow! factor. So with this in mind, instead feast on these insurance industry specifics; Model Heidi Klum’s legs are insured for the sum of £1.2million, whilst Rolling Stones guitarist, Keith Richards (gnarled of facial features yet hypnotic of beauty in the strumming department) has his hands insured for around £2 million.

Historically though, and 1940’s pin-up Betty Grable set the ball rolling by having her legs famously insured to the value of £1 million back in the day (affording her the name, ‘the girl with the million dollar legs), which by today’s rate would be equal to £25million. But going one better that was Riverdancer, Michael Flately who was rumoured to have taken out (what was at the time) the world’s highest ever insurance policy to cover his livelihood-essential pins, at a figure of £31million according to sources.

Getting Your Life Insurance Facts Straight Before Signing-Up to Policies Is Paramount to Avoid Unpleasant Surprises at a Later Date

But anyway, as fun and frivolous as these insurance industry factoids are, they don’t offer us the kind of insight we really need here and now, and especially not in direct relation to the subject of life insurance. So alternatively let’s cast our admiring glances in the general direction of this hugely popular insurance product area shall we, and see just what’s what.

First let’s get the more negative facts about life insurance out of the way, which mostly dwell on people’s failings rather than the industry’s. Did you know for instance that 35% of the UK’s would-be life insurance policyholders readily admit to struggling with the whole concept, which equates to just over a third of Brits. The age group who find life insurance the most complex nut to crack are those found in the 35 – 44-years of age demographic too according to (yes, our old friend, stats).

Of those who might or might not fully get a handle on life insurance per se, 18% were in a recent survey found to not totally understand why we even need a life insurance policy, which is a bit of a worry, with 35% of the under-24’s amongst the most clueless in this case. Perhaps even more shockingly is the fact that 1 in 10 over-55’s count themselves in the same questioning boat when it comes to grasping the concept of life insurance. Delving a little further into this and it materialises that 38% (who we assume DO get what life insurance is about) DON’T feel life insurance is necessary, and certainly not for them, wrongly thinking that it would be of far more concern/benefit to the those residing in the 41 – 50-years of age bracket.

Clearly the aforementioned need a crash course in just what life insurance is and what it can do for them, so it’s up to us to put a positive factual spin on this right here and right now. To those not in the loop, here’s the SP. Life insurance is THE most straightforward (and relatively) fool-proof means of financial protection you can arrange for yourself and ultimately affords the policyholder a lump sum in the event of their death. Or to be more precise, their dependents (be it surviving spouse, children, parents).

Although death isn’t always the trigger mechanism to free-ing up this money which the insured party pays into for a pre-defined passage of time, more of which later. Life insurance can set the policyholder back as little as a few pounds a month, but in reality it works out more than this, based on the type of plan you subscribe to. The final sum handed out is also largely dependent on the policyholder’s age, health and type of plan too. Once upon a time life insurance policy premiums would cost men a heap more than their female counterparts on the now-outlawed premise that women, statistically (look, there’s that word again) lived longer than men, ergo were less likely to put in a life insurance claim, resulting in less chance of the policy provider having to stump up.

But that all changed in 2012 when an EU Gender Directive ruled in favour of men, resulting in it being illegal for life insurance providers (and providers of all insurance products for that matter) to base policy premiums on gender.

The best way of explaining how life insurance works in both theory and (intended) practice is as such. Those who own their own mortgaged properties with their spouse (more specifically if they have children) should ideally sign-up to life cover with the view to the policy pay-out clearing any outstanding mortgage loan on their demise. This also would mean that surviving partners and children would essentially get to remain in the home and not have to unduly worry over any mortgage payments owing.

With regards to this populist scenario – although many other narratives apply – the different types of life insurance covers outlined hereafter would stand policyholders in good stead should an untimely death occur at certain junctures.

Level Term Life Insurance  – For those either wanting to have their mortgage paid off by a final pay-out and/or to leave their dependents financially buoyant in the direct aftermath of their death, then a level term policy makes perfect sense, as it pretty much guarantees this. In terms of paying, the policyholder will be asked to invest a set sum for a set period of time from the outset and is usually ran parallel to a mortgage repayment or a planned working life.

Whole of Life Insurance – As the name otherwise implies, a life insurance package that stretches to cover the rest of the policyholder’s natural and proceeds to recompense dependents/named survivors in the event of the insured party’s demise. To this end these plans typically comprise of both an insurance and investment element which run concurrently with each other and is often arranged by those with one (future) eye on settling inheritance tax. Habitually this is the most expensive form of life insurance.

Decreasing Term Life Insurance – This is a declining sum for a set period of time and is again often used in conjunction with a repayment mortgage by policyholders, chiefly due to the underlying fact that this will reflect the ever-dwindling long-term debt. It’s traditionally more cost effective than level term cover too.

Joint and Individual Life Insurance Policies – You can freely choose to arrange either individual or joint life insurance plans, although as a note of caution please ensure that you compare and contrast costs across the board first. As a general rule separate policies tend to be better, in as much as although often costing more up-front it guards against being left with nothing in the long run. You see that’s because for the most part those who opt to go with joint life insurances lose out once the first person passes away; as the lump sum guaranteed in this event is paid out as a one-off instance, meaning that the surviving partner must make their (and any dependents’) own ends meet thereafter. Alternatively with single policies if something terrible happens and you both die they will both pay-out.

Our final dose of facts comprises of things which represent sound advice, along with those that you should be wary of, with reference to life insurance generally, and reads a little something like this;

  1. Beware of ‘reviewable’ policy features which proclaim to offer low starting prices/premiums, yet invariably rise over time, as these can work out more expensive than whole of life plans if you’re not careful. Set for a pre-defined period (or agreed term), they are designed to increase on a future date and effectively revised after this pre-destined review.
  2. Sometimes arranging a life insurance policy in trust makes for a better deal, should you wish to avoid it forming part of the recently deceased’s estate. Another fact which should also be taken into account if you were to adhere to this advice would be is that any dependents of the recently deceased won’t be liable to pay an inheritance tax bill, whilst the sum owed on the policy will be paid directly to a specified individual, negating the requirement for it to pass through probate en route.
  3. Make sure you earmark enough from the beginning of arranging a life insurance product, bearing in mind key concerns for future funding such as finalising any outstanding mortgage payments, covering the cost of your own funeral and allowing enough to comfortable assist dependants with day-to-day living expenses. However also remember that the more expansive the cover you opt to take out, the pricier it will end up being. Thinking ahead is hugely important with life insurance, and if you see yourself relocating to a more expensive property further down the road (not geographically, but rather as your career becomes more successful), then it’s advisable to seek extra cover as soon as possible. Predominantly due to life insurance being cheaper the younger the insured party is when they take out the policy. Use an online life insurance calculator like this one to get a good idea about premium costs.
  4. Always refer to what might alternatively come to your/your dependents’ financial rescue in the event of your death before jumping to extensive life insurance conclusions, as it might just be that your existing employer offers a palatable death in service benefit as part of your perks which would, hypothetically, go a long way to alleviating any future fiscal pain for those left in your wake, which is usually derived from multiples of your salary. Likewise, long-standing pension plans passed on to families can also be worth considerable value too.