When faced with the challenge of encouraging customers to take up life insurance, financial advisers are immediately met with a significant roadblock.
Customers often have not considered premature death as a possibility in their financial planning. Understandably so, since it is not something most people want to think about.
Yet in the current economic climate, the impact of a premature death is likely to be especially pronounced due to the rising cost of living and high interest rates.
Explaining this, and quantifying the financial burden of a premature death and its impact on surviving dependents, is no easy feat. Beagle Street’s latest study therefore aimed to provide a realistic scenario to share, in the simplest terms, how an unexpected death would impact a defined UK family unit.
Rising prices
An assessment of the financial burden of a premature death must begin with context.
The UK has seen rampant inflation over the past couple of years, with peaks at more than 11 per cent in October 2022. This was down to a number of factors, including the ongoing war in Ukraine and the subsequent strain on energy and food prices.
With these fundamental costs affected, few households have been exempt from the added strain to finances. A study by the Abrdn Financial Fairness Trust found that even those earning between £30,000 and £60,000 a year are struggling to pay for food and other essentials.
Thankfully, inflation is beginning to ease, with rates dropping to their lowest level in two years in March 2024. However, the significant prices rises of the past couple of years have already had a significant impact on the financial resilience of many households.
Housing woes
In a bid to combat rising living costs, the Bank of England raised interest rates 14 times from 0.1 per cent in November 2021 to its current level of 5.25 per cent. While this is positive for savers, those with debts to pay have seen their financial woes grow.
Specifically, this has a dramatic impact on the biggest debt most people are likely to undertake in their lifetimes – a mortgage.
Households on flexible mortgage rates have already felt the impact, but a further 1.5mn households on fixed rate deals will have to renegotiate at inflated rates this year.
And it is not just mortgage holders that are affected; renters continue to see prices surge as landlords pass on additional costs to tenants. The average monthly rent across the UK is now £1,238, more than £100 more than it was even 12 months ago.
With only around 30 per cent of UK adults having life insurance policies, the majority of mortgage holders cannot rely on a payout to cover costs for surviving dependents in the event of an unexpected death.
In fact, a Beagle Street study conducted in 2023 found that around £400bn of mortgage debt in the UK is not covered by life insurance, leaving families particularly vulnerable should an unexpected death occur.
