70% of UK Adults Think Life Insurance Is More Expensive Due To Pandemic

Long before the pandemic struck, all the way back in 2018, Drewberry conducted our fourth annual Protection Survey.

One of the key takeaways from this was clients overestimating the cost of Life Insurance. When we asked adults to estimate the cost of Life Insurance to provide a 35-year-old non-smoker with a £250,000 of cover until age 65, the average estimate came to £42.74.

However, the true figure to provide such an individual with this level of cover is just £14.35 — a whopping 197% less than what the general public estimated.

How Has COVID-19 Affected Perceptions?

According to Drewberry’s Pandemic Health & Protection Survey 2021, almost half of adults think COVID-19 has made Life Insurance slightly more expensive. A further 18.5% believe it has significantly bumped up the cost.

Given clients were already overestimating premiums by 200%, what must they think they cost now?

What About Assumptions Surrounding Payout Rates?

Our new survey found that more in 2 in 5 adults (44%) believe Life Insurance providers paid less than 50% of all coronavirus claims last year.

This is despite the latest figures from the Association of British Insurers (ABI), which found that in 2020 insurers paid out 96% of personal Life Insurance claims and 99% of group claims.

In total, insurers paid out £202 million — or £550,000 every day — to support the families of people who tragically died due to COVID-19 in 2020.

What the Industry Must Do to Help…

When you couple the fact that 67.4% of adults think Life Insurance is more expensive now than pre-pandemic with clients’ low opinions about payout rates, you get a perfect storm.

As an industry, the last thing anyone wants to see is for clients to start giving up on Life Insurance because of the pandemic.

It’s therefore up to us to step up and dispel fears about pricy premiums and low payout rates. Otherwise, swathes of clients will be put off buying valuable protection that could make a real difference to them and their families in a time of great need.

We need to trumpet payout rates from the rooftops, not tuck them away in press releases.

As an industry there is a real consumer engagement piece making UK adults aware of the bang they get for their buck.

Tom Conner
Director at Drewberry

Is The Same True for Income Protection and Critical Illness Cover?

For Income Protection, perceptions around the cost of cover are still a major factor stopping clients buying cover. 18.9% of adults didn’t have it because they thought it was too expensive.

Men were more likely to think Income Protection was too expensive than women. More than 1 in 5 (20.4%) felt this way, while only 16.5% of women said the same. That made the perceived cost the most off-putting factor about Income Protection for men.

How Clients Think COVID-19 Has Affected Premiums

Even more clients think that Income Protection providers have hiked premiums due to the pandemic. More than three-quarters of adults felt Income Protection was either slightly more expensive or significantly more expensive after the pandemic.

Once again, we’ve kept close tabs on the market over the past year and found no evidence of Income Protection costing more now than pre-COVID. While some insurers did remove features such as shorter deferral periods on new policies, there simply hasn’t been a spike in premiums due to the pandemic.

Josh Martin
Independent Protection Expert at Drewberry

A similar proportion of UK adults — 74.2% — also thought that Critical Illness Insurance was now either more expensive or significantly more expensive due COVID-19.

Yet we’ve not found this to be the case either. Throughout the pandemic, Drewberry has continued arranging Critical Illness Cover for clients without seeing a spike in premiums.

Perceptions vs Reality

The price of protection insurance hasn’t gone up massively due to the pandemic.

Income Protection and Critical Illness Cover

For Income Protection and Critical Illness Cover, this is partly due to the nature of the policies and the virus.

Firstly, in a typical COVID-19 infection, symptoms are fortunately over before the end of many policyholders’ Income Protection deferred periods.

While there is of course the risk of serious, longer-lasting infection and illness, and Income Protection Insurance would pay out for this, over the past year many working age people who contracted coronavirus have luckily recovered well.

Secondly, there are few conditions you could claim for on the list of illnesses the typical Critical Illness Insurance policy covers that are related to COVID-19.

Of course, the most severe coronavirus causes require medically-induced comas and treatment in intensive care. However, again, for many working age adults infection with COVID-19 doesn’t lead to this.

That means there hasn’t been the big spike in coronavirus claims on Income Protection and Critical Illness Insurance policies that many clients assume has caused rising prices.

Life Insurance

While there has been a rise in Life Insurance claims due to the pandemic, it’s worth noting that insurers paid out £3.07 billion in Life Insurance claims in 2019 for all causes of death.

The £202 million in Life Insurance claims paid in 2020 due to COVID-19 represents just 6.6% of this figure. COVID-19 claims therefore remain relatively small in the grand scheme of total Life Insurance claims.

It’s seems unlikely that there’ll be the significant rise in Life Insurance premiums many clients are expecting going forward. We need to do all we can to remind them of just that.