According to Swiss Re, one of the world's largest re-insurance
companies, less than half of the UK population has any form of
life insurance protection. They then go on to put a figure on
the value of this protection gap. Using an average income of
£20,000 and assuming that the value of protection needed ranges
between 5 and 10 times income, they put a value on the
protection gap at £2.3 trillion.
But in all probability, whilst the gap is huge, £2.3 trillion is
likely to be somewhat over stated. After all there are people
who are disqualified from having life cover due to their age -
just over 1 in 5 are under 18 years old, the minimum for life
cover, and 1 in 6 are effectively uninsurable as they're over
65. Then there's a raft of persons for whom life insurance is
just not necessary. These are people aged between 18 and 65 who
do not have dependents. Having said that, without doubt, there
are still many families in the Swiss Re survey that have been
correctly identified as desperately needing life insurance.
So if they need life insurance, why do they hold back?
Undeniably there are still many people who have no understanding
what life insurance provides and because they don't think about
it, they don't care, and nothing ever gets done. After all life
insurance isn't a fun buy - there's no enjoyable window-shopping
or pleasure in owning it. The chances are that unless financial
advisers sit down and talks to these, they'll remain totally
uninterested and uninsured.
Newspaper reporting given to the insurance industry also tends
not to help. The Sunday papers in particular are regularly full
of stories about one family or another that has had a claim
turned down. These stories make the headlines, as behind them
there's invariably a poignant tale of personal tragedy and
distress. It all gives the life industry a tarnished image and
creates a feeling that they can't be trusted. In practice, when
you read the stories, the reason for the claim being refused
often comes down to the fact that the policyholder missed off
some relevant information from their application form.
Nevertheless, some refusals are clearly wrong and this
undoubtedly damaging.
Then there are those people who fully appreciate that they need
life insurance but just can't be bothered or say they can't
afford the premiums. More realistically, for many "can't afford"
actually means, "I choose not to afford". They might be happy to
spend £100 at the pub each month but are unwilling to cut back a
little to pay the premium that protects their family's future.
For sure, there is no disputing the fact that some life
insurance applicants have found the final quote to be genuinely
unaffordable. Whilst for the majority, cover at standard
premiums is affordable, over the last seven years we've seen a
huge rise in the number of people who have seen the proposed
premium substantially increase once the insurer has looked at
their application form. It's a result of the life companies
making it harder for people to meet the company's definition of
"healthy". Seven years ago half as many applicants were seeing
the price increased as a result of the insurance companies
classifying them as an above average health risk.
Even a few years ago it was usually obvious who'd have
difficulty getting insured at standard rates - people with heart
or circulatory problems, former cancer suffers and diabetics for
example. How the picture has now changed. Application forms are
much more detailed and medical problems that were previously
acceptable are now only acceptable with a higher premium. Take
weight for example - these days insurers clamp down when they
judge an applicant's weight to be a risk to their longer-term
health. And it's not just the obviously obese that attract the
insurer's notice. Companies are now using the Body Mass Index to
identify weight problems. This is your weight divided by the
square of your height. Most life companies now want a BMI of no
more than 29, whereas previously up to 40 was acceptable. This
means that a woman weighing 83 kilos and 1.66 meter tall will
now face a higher premium.
The application process can also be put some people off. Whilst
about 30% of people will receive an immediate decision, for
others the process can become one delay after another. As if a
14-page application were not enough, some people are being asked
to complete more forms in addition to medical examinations. The
whole process can take up to 9 weeks, sometimes even more,
before the applicant finds out precisely how much their premium
will be. If that premium works out more that they can afford,
the applicant is often too tired of the whole process to start
applying again to a new insurance company. The result is yet
another family without life insurance.
Despite these problems, the life companies say that thanks to
more sophisticated underwriting procedures, prices are lower
today that they were a few years ago. The arrival of the
Internet has also had a profound affect on prices. Around 10% of
life insurance is bought online and discounting has become the
norm. This too has helped more families to become insured.
However, in the author's view it will take more than a decade to
get people covered by life insurance above the 50% level.
About the author:
Michael writes for Brokers Online who offer life assurance
and most UK financial services including credit
cards .
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