It’s not something we like to think about, but unexpected premature deaths are more common than we might expect.
One study tells us that the largest number of deaths in those under 40 years old is from some form of coronary disease.
Those who are unfortunate enough to lose a loved one in this way will inevitably be left with an emotional and financial strain on surviving family members.
Yet, we know that a sizeable amount of the adult population does not have life insurance to provide a safety net in this scenario, with estimates of just 30% to 35% of the population having cover.
To put the impact of a premature death into context and understand the impact of having a life insurance policy, it can be more helpful to see a realistic scenario presenting the measurable effects of neglecting long-term financial planning.
Beagle Street’s latest report assesses the baseline financial impact of a premature death in a British family.
For a household with equal earning partners and two children, our model calculated the 10-year financial impact of the premature death of one parent to be over £190,000 on average across the country.
This figure considers the bare minimum needed to cope financially after the death of a loved one, only accounting for mortgage payments and essential household spending.
When we acknowledge the impact of other factors, including childcare and non-essential spending such as holidays, that figure is likely to grow significantly.
Financial challenges for Britons
When studying the financial impact of a premature death, we must also account for the current economic climate.
Rising energy and food costs in particular led to rapid inflation in the UK throughout 2022 and 2023. While this rate has now slowed, it’s still comfortably above the Government’s 2% target.
Those with flexible mortgage rates have already felt the strain of high and fluctuating interest rates but a further 1.5 million fixed rate deals are set to end in 2024, with annual housing costs for a typical family rising by around £1,800 a year.
Meanwhile, private rental prices paid by tenants rose by 6.2% in the 12 months to December 2023.
Alongside these pressures, real wages – meaning income that has been adjusted for inflation – shrank throughout 2022 and have only begun to grow slowly since the back end of 2023, leaving workers struggling to keep up with rising prices.
With essential spending rising and a lack of income growth, many have been forced to use savings to stay afloat.
Here, the UK population comes up against its low savings rates. Despite similar earnings to many European neighbours, the UK savings rate as a percentage of gross income is around two thirds of the European average.
Approximately a third of the UK adult population has either no savings or less than £1,000, leaving them unable to absorb any sudden changes to their financial situation, such as a loss of income.
The Adverse Life-event Financial Impact (ALFI) model
Given the challenges of the current financial landscape, it’s perhaps understandable that many are dismissing life insurance as an additional unnecessary cost.
In fact, a recent study found that over a quarter of UK workers have cancelled life insurance policies in the past year – with growing financial pressures a primary reason for cancelations.
Yet, it is during these difficult times that the value of life insurance is most pronounced.
Our recent study on Adverse Life-event Financial Impact (ALFI) aims to educate consumers about the value of cover and shares a useful scenario to illustrate basic financial impact on a defined UK family unit– two equal earning parents with two children.
The model chooses to cover a ten-year period during which a child will grow to adulthood and become more financially independent.
Should an unexpected death occur, the surviving parent will have to deal with an annual shortfall of over £19,000 annually, a difficult to absorb financial impact when you consider the median UK take-home pay is just 28,000.
In this context, the payout from a life insurance policy is a key support to ease the financial burden.
There is likely to be a variance in the financial impact for different regions of the UK. Regional disparities reflect differences in income and cost-of-living in different areas.
Even when you take into account the elevated wages of those living in London compared to other parts of the country, those in the nation’s capital are likely to feel a greater strain due to the exceptional cost of housing in the area.
A safety net for difficult times
While each family’s individual circumstances will vary, the value of life insurance as a safety net cannot be overstated.
With cover starting from around £6 a month for a 30-year-old non-smoker with £200,000 of decreasing term cover for a 20-year period, the financial burden of a policy is lower than some might expect and can provide some peace of mind that loved ones will be supported if a tragic event should occur.
Intermediaries can play a pivotal role in guiding families towards the most appropriate life insurance solutions, ensuring financial security and peace of mind for their clients.
Mark Mullaney is head of partnerships and distribution at Beagle Street
