With rising energy costs and food bills in the past couple of years, many UK households are feeling less financially resilient. Smart financial planning has become a necessity as we look to make our money go further.
When organising our financial futures, life insurance often falls to the bottom of a long list. Perhaps we see it as an unnecessary extra expense at a time of economic hardship. In times of difficulty, though, it offers an invaluable safety net to loved ones.
To put this into perspective, Beagle Street’s latest study examines the baseline financial impact of a premature death on a UK family. The study takes a conservative approach, including only essential household spending and mortgage payments, and estimates the basic ten-year impact for a British two-child family to be over £190,000.
Diminishing financial resilience
The current economic landscape has been chipping away at our finances. In a recent study by the Office for National Statistics, around four in 10 adults reported they wouldn’t be able to save money in the next 12 months. A similar amount found affording their rent or mortgage payments difficult.
With wages struggling to keep up with inflation, this is not surprising. Expectations are that by the end of 2024, real wages will be no higher than they were in 2006 according to Resolution Foundation.
And we’re not great at saving either. Dealing with these extra expenses become a greater issue when you consider the UK’s low savings rate, with just over 16% of our gross disposable income being tucked away. This is far below the EU average of 26.7%, with the Netherlands (31.3%) and Switzerland (33.4%) especially strong at keeping some money aside.
This, alongside high inflation and housing costs, significantly reduces our ability to absorb any major unexpected change to our financial circumstances.
Quantifying adversity
All of this served as a valuable background to conduct our study, examining the financial impact of a premature death on a typical UK family. Our Adverse Life-event Financial Impact (ALFI) model, examined the basic ten-year impact on a defined UK family of two partners earning an equal salary with two children. The model covers a ten-year period before the children reach adulthood and become more financially independent.
ALFI estimates the ten-year impact (using 2022-23 data) to be over £19,000 per year – a net loss of household income that is hard to afford when compared to the median UK take-home pay of less than £28,000.
Bearing in mind the study only considers mortgage payments and essential household spending, the actual burden is likely to be much higher. This is because additional childcare needs and other ‘non-essential’ costs like trips to the cinema or memberships to sports clubs will need to be absorbed by the surviving partner.
It’s unsurprising that people are reluctant to take on another expense during times of financial strain. But the importance of life insurance as a safety net cannot be underestimated.
In fact, a 30-year-old non-smoker can expect to receive £200,000 of decreasing term cover for a 20-year term for just £6 a month.
For young families likely to be especially vulnerable in the event of a premature death, investing in cover can be critical to improving financial resilience.
Mark Mullaney is head of partnerships and distribution at Beagle Street
