Swiss Re, one of the largest re-insurance companies in the world, says that less than half of the people in the UK have some kind of life insurance. Then, they figure out how much this protection gap is worth. Using an average income of GBP20,000 and the idea that the value of protection needed is between 5 and 10 times income, they put the protection gap at GBP2.3 trillion.
But it's likely that GBP2.3 trillion is a bit of a stretch, even though the gap is big. Even so, some people can't get life insurance because they are too young or too old. Just over 1 in 5 are under 18, which is the minimum age for life insurance, and 1 in 6 are over 65 and can't get insurance. Then there are a lot of people who just don't need life insurance. These are single people between the ages of 18 and 65. Even so, there are still a lot of families in the Swiss Re survey that need life insurance very badly, which is exactly what the survey found.
So why don't they get life insurance if they need it?
There are still a lot of people who don't know what life insurance is for, and because they don't think about it, they don't care, and nothing ever changes. After all, life insurance is not a fun thing to buy. It's not fun to look at it or to have it. Chances are, unless financial advisers sit down with them and talk to them, they won't be interested and won't get insurance.
Newspaper stories that are sent to the insurance industry don't help either. Every week, especially in the Sunday papers, there are stories about families whose claims were denied. These stories make the news because there is always a sad story of personal tragedy and pain behind them. All of this makes the life industry look bad and makes people feel like they can't trust them. In real life, most of the time, the reason a claim is denied is because the policyholder forgot to include some important information on the application form. Still, some refusals are obviously wrong, and this is definitely bad.
There are also people who know they need life insurance but don't want to get it or say they can't pay the premiums. Many people who say they "can't afford" are really saying, "I choose not to afford." They might be happy to spend GBP100 at the pub every month, but they won't cut back a little to pay the premium that protects their family's future.
There is no doubt that some people who applied for life insurance found the final quote to be way too high to pay. Standard premiums are affordable for most people, but in the last seven years, there has been a huge increase in the number of people whose proposed premiums have gone up a lot after the insurer has looked at their application form. It's because the life insurance companies have made it harder for people to meet their definition of "healthy." Seven years ago, half as many applicants had their prices go up because insurance companies thought they were a higher-than-average health risk.
Even a few years ago, it was usually easy to tell who would have trouble getting insurance at standard rates, such as people with heart or circulatory problems, people who had cancer or diabetes in the past, or people with a history of these diseases. How things have changed now. The application forms are much more detailed, and health problems that used to be okay now only are if you pay a higher premium. Take weight as an example. These days, insurers are stricter when they think a person's weight poses a risk to their health in the long run. And it's not just the really fat people who get the attention of the insurance company. Companies now use the Body Mass Index to find people who are overweight. This is how much you weigh divided by how tall you are squared. Most life insurance companies now want a BMI of no more than 29. In the past, they would accept a BMI of up to 40. This means that a woman who is 1.66 metres tall and weighs 83 kilogrammes will now have to pay more for her insurance.
Some people may also be turned off by how to apply. About 30% of people will get a decision right away, but for others, the process can lead to delays after delays. Some people are being asked to fill out more forms on top of having to fill out a 14-page application and get a medical exam. Before the applicant knows how much their premium will be, the whole process can take up to 9 weeks, and sometimes even longer. If the premium is more than they can afford, the person applying for insurance is often too tired to start all over with a new company. Because of this, yet another family does not have life insurance.
Even with these problems, the life insurance companies say that prices are lower now than they were a few years ago because they have better ways of figuring out who needs insurance and who doesn't. Prices have also changed a lot since the Internet became popular. About 10% of life insurance policies are bought online, and discounts are now the norm. This has also made it easier for more families to get insurance.
But the author thinks it will take more than ten years before more than 50 percent of people have life insurance.
