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I like to be prepared. That’s why my larder is full of every available tin, condiment, crisp and other consumable. It also explains why there’s plenty of fizz in the house. And in the wine fridge. It’s why the chest freezer is packed to bursting with a range of frozen goodies. You never know what’s going to happen or who might show up expecting to be fed or watered.
When Covid struck, causing panic in the supermarket, my loo paper, pasta and dog food supplies came into their own. They weren’t there for a rainy day because that rainy day had arrived. Extrapolating that philosophy, I should have life insurance. Except I don’t. Should I buy it?
I have always assumed that life insurance is a colossal throwing out of money. Why pay for a policy that careful saving should more than adequately cover? Until recently I didn’t even understand the difference between a life insurance policy that covers for a fixed term, or life assurance that covers for your whole life. Either way there’s a bewildering range of policies out there. And all of them seemingly have a list of exclusions longer than the list of things they actually cover.
Yet there’s very little written about these policies by the users. Is it because you only know if it’s been good value for money once you’ve popped your clogs? And then who’s going to write a glowing article saying how nice it was to receive a huge lump sum but someone had to die in order for the insurance policy to cough up?
The policies that are just a fiver a month seem less than pointless. You could receive a sum of just over £1,000 up to £10,000 to help cover funeral costs. SunLife estimates the cost of a basic funeral is nearly £4,000, with the overall cost of dying at £9,200.
Frankly, I don’t really want to pay for my own funeral with monthly payments. I have been such excellent company, a brilliant party host and generally good at remembering birthdays and anniversaries: the few thousand quid required to frazzle me when I’m gone and pay for a road trip to throw my ashes into the North Sea from my beach hut is the least friends and family can do. (At high tide please, preferably when it’s not windy as I don’t want you to have to sweep me up off the floor).
I understand a policy that covers mortgage payments or school fees if you have children or dependants could be helpful at a certain point in life. And while you’re at working age, when your borrowings are high and household finances based on future earnings, this makes reasonable sense.
But I never bothered with these products then and I’m at a different financial point in my life now. The life insurance policy that only covers you while the policy is in place seems to be a right ol’ Ponzi scheme. Pay a whole load of money and get a wedge if you die. Call me selfish, but I’d rather have the £189 a month plus another £267 if I want £100,000 of critical illness cover in my pocket or making investments.
And then there are the limits. Many policies seem to be capped at around £400,000 — a useful amount of money to receive. Unless you have very little by way of assets, or you set it up in trust so your beneficiaries own your life insurance cover, you could find it bolsters your inheritance legacy, meaning it will be taxed. No thanks.
However, this market is huge. According to online data, global annual premiums exceed $1.1tn. And in the UK, market research group IBISWorld estimates the UK market size to be nearly £65.4bn. That’s a lot of premiums.
The industry itself is at pains to tell you how great a record they have at paying out claims. According to Reassured, it was 96.9 per cent on average in 2022. Perhaps our perception of making claims or wrangling we’ve had to do over the years makes these high payout percentages surprising? The 99.9 per cent payout for life claims is easier to explain. It’s fairly hard for an insurance company to argue against death. Unless you’re Lord Lucan.
These products seem to be aimed at people with no savings, no pension, an outstanding mortgage and no cash in the bank. Finder.com has some rather astonishing statistics relating to the UK population’s finances. Nearly a quarter of British people have no savings at all rising to 32 per cent of generation X. Half of us have less than £1,000 tucked away and the average person in the UK has just £17,773.
We often perceive our nation is wealthy. And we are compared with the rest of the world. Yet there are millions of Brits who just about manage. Low-paid jobs and having barely enough to get by is the reality for many. The financial crash, the cost of living and energy price rises have exacerbated the issues. For many people, an insurance payout at the right time can be vital.
For myself, I have been much more careful than I sometimes portray in this column. I have even made a few wise investments over the years, and I question whether an insurance policy or suite of policies is really what I need. My day-to-day expenditure needs trimming, while my overall financial worth has never been stronger. Like many who read this column, I’m asset rich, cash poor.
I will pass on spending thousands every year on these expensive policies. And focus on three important things. Write the will I never bothered to draft, keep investing prudently so there’s a cash buffer with enough left for that fabulous send-off party, and make sure the family knows where I keep the fizz.
James Max is a broadcaster on TV and radio and a property expert. The views expressed are personal. X, Instagram & Threads @thejamesmax
