Most people don't like to think about death, but many try to put some sort of plan in place in case the worst happens.
Yet fewer than half of adults (41%) say they have life insurance. Of those, one in twelve admit they don't know how much they are covered for.
According to an AA/Populus study* among AA customers, the gap in life protection is most evident in 35 to 44 year olds who are the most likely to have both children under 18 (60%) and a mortgage (59%). Although they have the greatest need, only 43% of this age group have life insurance.
Life insurance can provide protection at any age; people in their 40s and 50s are the most likely to have cover – but that's only 57% of them.
Mark Huggins, director of AA Financial Services, says "Life insurance is generally taken out to cover an outstanding mortgage or to leave a lump sum behind for family to help pay bills in the future. It's life-changing events such as having children or buying a house that lead people to think about making provisions in case they're no longer around."
But Huggins points out that the take-up from those at those life stages is still lower than might be expected.
if you're young and healthy, life insurance can cost just a few pounds a month
Mark Huggins, director of AA Financial Services
According to Huggins, "Taking out life insurance may not be front of mind for people who have a new strain on their finances such as a house or a baby. But if you're young and healthy, life insurance can cost just a few pounds a month."
He goes on to point out that life insurance can be useful for those left behind: "A lump sum life insurance payment to your dependents can be used for any purpose, which could include covering a funeral or an inheritance tax bill. Those who wish to pass on an inheritance in excess of £325,000 will have to pay inheritance tax amounting to 40% of their estate over that threshold.
"But whatever your age, life insurance can be a vital lifeline to your family if you're no longer around."
Huggins advises that those with life protection review their cover regularly: "You might not know how much your life insurance will pay out down to the last penny, but it's important that you know what kind of life insurance policy you have and check it reflects your needs and the requirements of your family, especially as your income and outgoings change over time.
"You might find that since taking out life insurance, for example, you change jobs or have a child and you may want to leave a lump sum or provide a regular income to your family.
"Over 75% of 30 to 45 year-olds insured by AA Life Insurance have less than £150,000 of cover. Is this enough to pay off their outstanding mortgage should they die? Maybe not, but it's easy to top-up or take out an additional life insurance policy for the shortfall."
Designed for the AA by Legal & General, the AA has an online life insurance calculator to help consumers decide how much cover they might need. It can look at your financial obligations and what you'd like to leave money behind for – such as to cover a funeral or to leave a lump sum for your family.
*Research was carried out by Populus among 1,690 respondents aged 18+ from 13 to 23 February 2014.
'Level' or 'term' life insurance covers the policyholder for a specified term (eg 25 years). If the policy holder dies within the policy term, their next of kin will receive a cash lump sum.
Over-50s life insurance is designed for people aged over 50 and offers guaranteed acceptance. Policy holders pay into the plan for a specified term (usually until their 90th year) but the cover continues for the rest of their lives. The plan then pays out a cash lump sum upon their death.
AA Life Insurance is provided by Legal & General Assurance Society Limited.
8 May 2014