Rich families which have access to cash do not need life insurance as poor people do. Life insurance is a pile of money, sat on a shelf so long as there’s money to keep it there. The idea is that a small amount of cash (usually a regularly monthly premium) can make all the difference if everything goes wrong, and not much difference – if everything goes right.
Life insurance is an idea passed down between generations and the ethic for it is reinforced by populist sentiment that you look after your own.
Life insurance was once sold door to door and collected door to door. It only moved to digital administration quite recently. Although you can buy it on moneysupermarket, the loss of community collection systems , immortalised by the man from the Pru, has distanced life insurance from its communal and inter-generational roots.
Nowadays, life insurance is bought to protect estates, typically by the wealthy – worried about the break up of the assets they leave behind to pay death taxes. This is a very different concept than the “widows and orphan policies taken out by the breadwinner to give the family space to recover from “his” unexpected demise.
Nowadays, insurance comes in a different way. It is now normal, not exceptional , for ther to be two breadwinners in the family unit and bor both to have “trapped” savings in a pension pot(S). It is too little recognised a benefit for families, that life insurance is integral to savings and that the pension pot is paid on an EEE basis. Families do not pay tax on the proceeds of a workplace pension when claimed on deat.
The beneficial tax treatment of pension death claims continues all the way to 75, though it is arguable whether there is such an insurable interest once people get to their maturity. Sadly many pension policies are now being used to mitigate inheritance tax rather than pay pensions, and getting perverse tax-privileges in the process.
Life insurance is still a good thing to purchase when you are young. There is a time when pensions should mean you are insured through the fund and this suggests that the traditional 25 year term and convertible term policies that I grew up selling should be replaced by decreasing term policies which are offset by increasing savings.
Certainly this is now group life ought to be purchased. I’d be interested to hear views of advisers as to whether group life policies are changing to meet the increased take up of workplace pensions.
When it started, NOW aimed to provide insurance to all savers using such an offset. I’d like to see an insurance company teaming up with a master trust to offer such a facility. It looks like a proper differentiator to employers and a means to make the younger pension savers aware that opting out means losing more than just an employer’s contribution.
I’ll finish by making a plea to :LGPS funds to renew its promotion to those who consider or are opting out of LGPS that there is a 50/50 option which means that members can pay half the contribution and still get 100% of the life insurance and health benefits offered by the scheme.
Employee benefits are no good to the self-employed who still need to make their own way home, but life insurance now looks to be a workplace benefit and – even if is no more than the return of fund – it is increasingly a universal benefit for us all.
Life insurance – we’d rather save, but we wouldn’t say no if our pension helped out!