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I like to maintain a high level of preparedness, which is why my pantry is stocked with a variety of tinned goods, condiments, snacks, and other consumables. Similarly, I ensure there is an abundance of fizzy drinks in the house and the wine fridge is well-stocked. My chest freezer is packed to its limits with a diverse range of frozen delicacies. You never know when unexpected guests might arrive, expecting to be fed and entertained.
When the Covid pandemic hit and caused panic buying in supermarkets, I found solace in my stockpile of toilet paper, pasta, and dog food. These supplies were not meant for a hypothetical rainy day, but for a real-life crisis. This has led me to contemplate whether I should invest in life insurance. Is it a sensible decision?
For a long time, I’ve viewed life insurance as a wasteful expenditure. After all, diligent saving should be sufficient to cover any potential financial needs. Until recently, I wasn’t even aware of the distinction between life insurance policies that offer coverage for a specific term and life assurance policies that provide coverage for the entirety of one’s life. The market is flooded with a bewildering array of policies, each with an extensive list of exclusions that often overshadow their actual coverage.
Surprisingly, there is a dearth of user reviews and experiences regarding these policies. Is it because the ultimate value of a policy can only be determined after one’s passing? And who would willingly write a positive article about receiving a substantial payout from an insurance policy, knowing that it came at the expense of someone’s life?
Low-cost policies that charge a mere five pounds per month appear somewhat futile. They typically provide a payout ranging from just over £1,000 to £10,000 to cover funeral expenses. SunLife estimates that the cost of a basic funeral amounts to nearly £4,000, with the overall cost of dying reaching £9,200.
Personally, I am not keen on financing my own funeral through monthly payments. I firmly believe I have been an excellent companion, a superb host at parties, and someone who consistently remembers birthdays and anniversaries. Therefore, the few thousand pounds required to give me a memorable send-off and cover a road trip to scatter my ashes in the North Sea from my beach hut is the least my friends and family can do for me. (Preferably at high tide, and on a calm day to spare them the task of sweeping me off the floor).
I can see the value of a policy that covers mortgage payments or school fees, especially for individuals with dependents. This may be particularly relevant during the working years when debts are high, and household finances rely on future income. However, I never felt the need for these products in the past, and my financial circumstances have since evolved. The concept of a life insurance policy that provides coverage only while the policy is active feels like a modern-day Ponzi scheme. Personally, I would prefer to have £189 per month, along with an additional £267 if I desire £100,000 of critical illness cover, in my own pocket or invested elsewhere.
Furthermore, these policies often come with limitations. Many are capped at around £400,000, which may seem substantial. However, unless you have few assets or you set up the policy in a trust, which transfers ownership to your beneficiaries, the insurance payout could potentially increase your inheritance burden due to taxation issues. This is not an appealing prospect.
Nevertheless, the life insurance market is massive, with global annual premiums exceeding $1.1 trillion. In the UK alone, the market size is estimated to be nearly £65.4 billion by market research group IBISWorld.
The insurance industry is eager to emphasize its strong track record of paying out claims. According to Reassured, the average payout rate was 96.9% in 2022. Perhaps our negative perceptions are influenced by the claims process or disputes we may have encountered over the years. The 99.9% payout rate for life claims is easier to comprehend, as it is challenging for an insurance company to contest death. Unless, of course, you happen to be Lord Lucan.
These insurance products primarily target individuals with limited savings, no pension, outstanding mortgages, and minimal cash reserves. Shocking statistics from Finder.com reveal that nearly a quarter of the British population has no savings, rising to 32% among Generation X. Half of the population has less than £1,000 in savings, and the average person in the UK holds a mere £17,773.
We often perceive our nation as economically prosperous, especially when compared to other countries. However, there are millions of Britons who struggle to make ends meet. Many individuals face low wages and barely have enough to cover their basic needs. The financial crisis, rising living costs, and increasing energy prices have exacerbated these struggles. For many people, an insurance payout during a critical period can be a lifeline.
Personally, I have been more prudent with my finances than I may sometimes let on in this column. I have made wise investments over the years, prompting me to question the necessity of insurance policies. While I could certainly reduce my day-to-day expenses, my overall financial position is stronger than ever. Like many others who follow this column, I possess valuable assets but lack significant liquid funds.
Ultimately, I have decided to forgo spending thousands of pounds each year on these expensive insurance policies. Instead, I will focus on three key priorities: drafting a will, continuing to make prudent investments to maintain a financial cushion, and ensuring that my loved ones know where to find the sparkling drinks.
James Max is a television and radio broadcaster, as well as a property expert. The views expressed in this article are personal. Follow James Max on Instagram and Threads @thejamesmax
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