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Aegon raises concerns that householders are under protected on mortgage debt

22 May 2017

Aegon recently released protection claims statistics that reveal mortgage debt exceeds the average life insurance pay out, meaning people are likely to be under protected for the amount of mortgage debt they have.

According to figures from The Money Charity[1], the estimated average outstanding mortgage for the 11.1 million households with mortgage debt in the UK was £119,937 in January 2017.

Stephen Crosbie, protection director at Aegon UK, said: “The latest figures from the Association of British Insurers (ABI) and Group Risk Development (GRiD) reported that life insurance claims paid out in 2016 had an average value of £75,000[2]. This implies that people could be under-protecting themselves based on their mortgage debt alone by around £44,937. Our own claims experience in 2016 reinforces this trend and shows that our life protection customers could be under-protecting themselves by more than £19,000[3] based on their mortgage debt alone.

“This life protection shortfall could leave loved ones facing a debt that may no longer be manageable on a single or no income.

“While buying a house tends to be a key trigger for people taking out protection policies, cover should be regularly reviewed to reflect any changes to levels of personal debt, including mortgages, and also to acknowledge any other key life events, like marriage, new jobs, children or divorce.

“No matter the place or time, life insurance never makes for good conversation. No one wants to talk about dying. But we need to turn our perception of life insurance on its head as it’s not all about death, it’s also about providing financial security and peace of mind for those left behind. And it doesn’t have to be an expensive conversation. Life insurance can cost less than a bottle of wine a month[4].”

Assessing protection needs

Clients assessing their protection needs clients should consider:

  • Their total monthly household expenditure.
  • How they would pay for everyday bills and essentials without the main income in the household.
  • What protection policies are already in place, if any.
  • The difference between the amount of protection policies they have in place and their monthly outgoings (including mortgage)
  • How much life insurance they really need.

Aegon UK said it paid a total of £123.4m in claims for life (including terminal illness), critical illness (CI) and income protection (IP), helping more than 1,300 families and businesses in 2016.

Aegon reported:

  • A total of £64.4 million paid out for life claims, a 15% increase on 2015.
  • A total of £35.4 million paid out for CI claims, a 7% increase on 2015.
  • Percentage of life, CI and IP claims paid remains broadly in line with 2015 at 98%, 95% and 85% respectively.
  • Cancer was the most common reason for CI (60%) and life claims (44%), while most IP claims (27%) were due to mental health-related claims in 2016.
  • 25% of life claims were paid early under its terminal illness definition.

Notes

[1] The Money Charity, April 2017 Money Statistics Page 8 http://themoneycharity.org.uk/media/April-2017-Money-Statistics.pdf

2 ABI 2016 claims report, May 2017 https://www.abi.org.uk/news/news-articles/2017/05/protection-insurers-pay-out-13m-per-day-in-claims/

3 Aegon’s average lump sum payouts for life claims in 2016 = £100,661

4 A life policy based on a healthy non-smoking 35 year old taking out a £90,000 Aegon life insurance policy over a 25-year term costs around £7.01 a month.

 

 

 

 

 

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