Does an increase in life expectancy make term life insurance better value?
Over the last three decades, the average life expectancy of an adult in the UK has crept up and up, as advances in medicine and a better standard of living mean we live longer. It’s also meant problems for the pensions industry, where many final salary pension schemes have gone bust, as people are living for too long, and the schemes are running out of money.
When it comes to buying term life insurance, the increase in life expectancy can only be a good thing. Insurance companies price their insurance policies based on the risk you present to them. Whilst it seems inhumane, the only way to make it fair for everyone, and to consistently make money whilst providing an affordable set of policies is to work to statistics.
If people are living longer, they are less likely to die before the age of 65, the typical maximum age for a customer with a life insurance policy. Many people now buy a home around the age of 30, pay off their mortgage for 30 years, and then live mortgage free until they retire and draw their pension at 65 to 70.
Whilst some buy homes earlier, and others buy their home later, they all follow a general pattern, and only usually have a need for term life insurance until their 65th birthdays. It also covers the period when they will have children, who they’ll have to support through their growing up years, through university and often when they need a deposit for a house of their own.
Most people take out term life insurance because they want to leave money to pay for the rest of their mortgage, and to support their family, including their children whilst they are still at home. They choose term life insurance because it covers them when they need it the most, and is also one of the cheapest forms of life insurance on the market.
If the average life expectancy continues to rise, term life insurance will continue to become better and better value for money.