Written by Mark Mullaney, Head of Partnerships and Distribution, Beagle Street
In the life insurance industry, we often paint a picture of future, unpredictable circumstances where extra financial support will be an invaluable safety net. Yet the very unpredictability of future risk means people may easily put off thinking about life insurance, or be less convinced about the need for it.
It is therefore helpful to provide a realistic scenario that adds context to the argument, to enable better long-term financial planning. Beagle Street’s latest report estimates the basic financial impact of a premature death in a defined two-child British family unit. Putting a numerical value to the impact of premature death may feel crude, but it helps to highlight the financial exposure surviving families could face and the importance of life insurance policies to provide protection. According to the model, the ten-year financial impact of the death of a parent is on average over £190,000 across the country, based on essential household spending and mortgage payments alone. If other factors such as childcare, different standards of living, and non-essential expenses are included, the actual burden is much higher.
Pressures on Britain’s financial resilience
Of course, British finances are already under greater stress, which makes financial planning even more critical at this time. The cost of living has escalated, despite recent reductions in inflation from their extreme peaks. The longer-term picture of inflation volatility remains to be seen, but the fact that these peaks have been experienced at all has already had its effect on British citizens and families. A survey from the Building Societies Association last year illustrated where the nation is feeling the pinch. It notes that over half of Britons were reducing their energy use (54%) and almost a third (31%) were planning to cut back on essentials such as food and clothing1.
One continuing financial pressure on British lives is the fact that underlying interest rates have risen very rapidly, increasing the cost of borrowing for us all. For mortgage-holders in particular, this has a major impact. According to a report in the Guardian in Summer 20232, “A household with a £500,000 tracker mortgage with 20 years to go will find that their monthly payments increase… Back in December 2021, their mortgage was costing £2,356 a month, meaning their annual bill has gone up by more than £15,000 in just over a year and a half.”
These pressures are coupled with low savings rates. The UK savings rate (as a percentage of gross income) is just under two thirds of the European average3. In fact, research by the Financial Conduct Authority (FCA) in 20224 suggests that around 30% of people in the UK have no savings at all. The report notes that 12.9 million UK adults had low financial resilience – 1 in 4 (24%) of all UK adults. It clarifies, “These are people who are in financial difficulty, or who could quickly find themselves in difficulty if they suffer a financial shock, because, for example, they have little to no savings or are heavily burdened by their domestic bills or credit commitments.”
The Adverse Life-event Financial Impact (ALFI) model
Most people, quite understandably, do not want to consider the impact of a loved one’s death. And from a practical point of view, even when the will is there, it can be difficult for a family to gain a clear picture of what that impact might be. For this reason, Beagle Street’s recent study assesses the financial impact of a premature death in a typical British family unit.
The Adverse Life-event Financial Impact (ALFI) model aims to provide a basic starting point, to help assess what the wider impact of a premature death might be. For this reason, only basic household spending and mortgage payments are factored into the calculation. In reality, the impact of a partner’s premature death is usually much wider, imposing additional childcare needs for instance, and severely curtailing leisure pursuits that can be so important to a person’s mental well-being.
ALFI is built on the basis of a defined family structure: two partners as household parents with two children, where both partners earn an equal salary. The model covers ten years until the children achieve adulthood. As mentioned above, ALFI estimates the basic ten-year impact (using 2022-23 data) to be over £190,000 (£19,000 per year) – a hard-to-afford net loss of household income when compared to the median UK take-home pay of less than £28,0005. This estimate draws on various high-quality datasets6, and can also be broken down to provide a financial impact assessment for the various regions of Britain, as presented in the table below. The impact of a premature death is likely to vary in each region, with Londoners the most hard-hit. Regional variations reflect differences in income and cost-of-living, depending on where someone lives in the country. The figures below serve as a rough guide to help people assess a suitable level of cover to protect them and their family in tragic circumstances.
The importance of life insurance
Each family unit’s exact circumstances are, of course, different. However, it remains the case that many more British households could benefit from life insurance to mitigate the risk of falling into financial distress should an unexpected death occur.
In times of financial strain, the last thing families want to do is add another bill. However, when that bill can mitigate the potential financial devastation of a lost income for a relatively small cost it is very worthwhile indeed. The cost of life insurance is not high for those most exposed to risk. Based on a 30 year old non-smoker, £200k of decreasing term cover for a 20-year term would typically cost around £6 a month7. It is hoped that by demonstrating the sheer scale of the impact a premature death can bring, we can inspire greater take up of life insurance across Britain.
Mark Mullaney Bio
Mark Mullaney joined Beagle Street in 2017 and is now Head of Distribution and Partnerships. He is a driven relationship and commercial development specialist who has many years of experience in building strategically significant partnerships. In his current role, he is responsible for identifying commercial opportunities and delivering new revenue-generating propositions within our existing and new third-party relationships.
