Life insurance is an unpopular product but one insurer is hoping to boost its profile by offering cash back if you don't claim.
Less than half of adults in the UK have protection in place to provide money for their families when they die. A recent study by the AA showed 60% of adults were uninsured and of those who had a policy, one in 12 did not know how much they were covered for.
The failure to engage with life insurance, which covers a set term and pays out a lump sum to loved ones if you die within that term, is due to a number of factors, said Dean Lamble, managing director of AXA SunLife.
‘People think [life insurance] is too expensive; they assume that it costs £50 a month for £100,000 cover when the cost is more like a tenner,’ he said.
‘They also think it is too complicated and it will not pay out.’
However, there is also a fourth reason for failing to put cover in place: ‘People think: "why do I care, I won’t be there",’ said Lamble.
The fact those who buy life insurance don't get anything out of it has prompted Lamble to turn to the Australia and South Africa for inspiration.
Insurers and consumers in these countries are accustomed to giving cash back to those who take out life insurance if they live for the full length of the term.
One South African insurer has modelled its business around this idea, calling itself OUTsurance and advertising with the slogan ‘you always get something out’.
‘This is prompting us to look at some sort of cash back; if you get to the end of your term, say 20 years, then we will give you a percentage of your premiums back,’ said Lamble. ‘[Through the Australian and South African insurers] people get between 30% and 100% of their [monthly] premiums back [if they survived the full term of the insurance].’
He said insurance companies that offered 100% of premiums back are able to do so because they act as ‘asset gatherers’ and invest the money they take in each month, although Lamble said AXA SunLife would not look to do this.
‘When you look at these insurers they are more like asset managers,’ he said, adding that premiums would not be paid back if policies lapsed during the period – in other words, when individuals stop paying their premiums before the term of the policy has ended.
This model of insurance has been criticised, with some arguing the cashback does not really benefit consumers because it is factored into the price of the product at the outset. But Lamble (pictured) said consumers should at least be given the choice of a cheaper product or cashback.
‘Some people do not like the cashback idea because they say that the customer has to pay for it anyway, but different customers like different things,’ he said. ‘If you buy a car and can get £1,000 cashback or £1,000 off the price of the car, some will take the cash and some will say take it off the car.
‘Individuals make individual decisions and we need different insurance products to cater for them…people love the idea of getting something back.’
While it's bad enough that only four in 10 people have life insurance, Lamble warned that those who did have it were likely to be under-protected.
He said people insured just 60% of their mortgage balance and failed to take into account other costs that a spouse, partner, or family would face in the event of death.
'People cover their mortgage but I would argue that you need more than that.'
He said there were three areas people should look at when calculating how much cover they need:
∎ total mortgage;
∎ the cost of education for children and bringing them up until age 18;
∎ the cost of running the household.
'People usually cover the bread winner; in my house I would be covered but what if something happens to my wife? I have three children and would either have to stop work to look after them or pay someone to look after them?
'If you are going to [buy life insurance] then
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