Cheap as chips!

Tuesday, 15th November 2011 13:16 - by Resident IFA

Life Insurance…money for old rope? Good value? Statistically, a man in England has a 68.7% probability of survival until 75; whereas for a woman it is 78.8% (From an Office for National Statistics (ONS) ‘Statistical Bulletin’ dated 8th June 2011). If you factor this longevity into Life Insurance premiums, it can perhaps be seen why premiums are lower than they were, say, 10-15 years ago. Actuaries and Providers will simply be suffering less claims – certainly, for term assurance i.e. that which has a finite term to expiry. For example, I advised a 36-year old and his 41-year old spouse yesterday with regard to their Mortgage-related Life Insurance. For £100,000 of cover over a 14-year term, we were talking £11 per month, give-or-take a few pennies. That premium represents pretty good value, in my book. The dual competitive necessity arising from more players entering this market and better straight-through-processing (STP) technology for applications (Via the internet and online underwriting) has helped drive premiums down. If you look at the expense over the cover term, the Couple mentioned above will pay total premiums of around £1,850. I sincerely and truly hope that the Providers makes the best part of £1,850 profit on this transaction, yet the Clients face 5,110 days of ‘natural peril’ (my words) i.e. driving around, flying off on holiday, walking under ladders…etc., etc. Heaven forfend death occurring prematurely for anyone, yet it sometimes does; accidents happening and unforeseeable conditions striking. Besides which, they have 3 young children. Should the worst happen, paying instalments of £11 per month for a potential £100,000 pay-out if either were to die prematurely, seems good value to me. Painting a worst-case scenario, if they died after paying a year’s worth of premiums, it would be £100,000 paid out to clear the Mortgage debt…for £132 expense to them. Back to my old faithful, the Sky subscription a lot of people happily pay for. I guess the average spend is £40-£50 per month? When equating this to Life Insurance, I have demonstrated that (perhaps) 20-25% of this cost would pay for a decent amount of cover. Why, for £40-£50 per month, you could even build-in a useful amount of Critical Illness cover! I’ll leave that for another day. Until next time…