When your car breaks down, a breakdown service such as the RAC may come to the rescue and fix the problem. If you suffer a car accident, your car insurer steps in and arranges the repair. If you fall sick, if you have private medical insurance your health insurer may help with a hospital bed, introduce you to a doctor and facilitate the provision of treatment. But with the most important insurance of all, life insurance, the policy which pays out when you die, your beneficiaries can expect nothing more than a cheque.
Why is this a problem? Mark Wood writes
Lack of support for the bereaved
The issue with life insurance merely providing a lump sum on the demise of the policyholder is that it ignores the trauma that a person’s death has the next of kin. Research by Everest UK, a funeral concierge service rolled into a life insurance plan, published in its inaugural Dealing with Death report, found that barely more than half of those surveyed who used a funeral director (53%) felt that their provider provided enough guidance or necessary information throughout the process of funeral planning.
It is striking to see that there is a lack of appreciation for the fact that the bereaved need logistical support and guidance rather than just a pay out during a time of extreme stress. Another shocking statistic was that more than a third of respondents said they were presented with much higher funeral costs than they expected to pay at the start of the process.
These issues are well-known in the industry.
The Competition and Markets Authority (CMA) and the Financial Conduct Authority (FCA) have taken steps over recent years to improve accountability and price transparency in the funeral advice market. This was mainly to protect vulnerable customers from buying plans that they do not understand. This is why the regulators introduced a rule in July 2022 which compelled every funeral director in the country to publish their tariff for each component of their service.
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The measures didn’t stop there. Where money has been taken in advance for a funeral, regulation now requires the provider of the funeral to hold an amount of money in reserve in addition to the projected cost of the funeral to ensure that the funeral provider is certain to honour its policy.
A life insurance policy that only gives a payout is not how life insurance should work if industry practitioners were designing life insurance from scratch today.
What should life insurance pay out include today?
I believe life insurance policies should be sensitive to the needs of the beneficiaries and should demonstrate an appropriate approach to an insurer’s duty of care to the consumers of their products. The ideal product would certainly provide assistance with all the practicalities which demand urgent attention following a death. Policies should address the concerns of the family, allowing the bereaved to grieve.
Ideally, the insurer would have taken responsibility for the insured’s interests by having encouraged their now deceased policyholder to have prepare a will, to have made a comprehensive record of how they wished their life to be celebrated, and to have suggested that they carefully store all their passwords, codes, important addressees and documents, so that those on whom responsibility falls for dealing with their estate know where to look for all they need. So often this is a massive challenge for bereaved next of kin.
The life insurance policy would also ensure that support would be provided to the family in negotiating on their behalf the best financial terms for the funeral service, ceremony and celebration of life.
Everest entered the UK market in 2022 in partnership with life insurance to help the bereaved. All MetLife protection employees can access a funeral price comparison website, a digital will writer, secure digital lock box and a 24-7 “funeral concierge” which helps untangle unfamiliar complexity of the practicalities which must be addressed following a death.
But there is so much more we and the entire industry can do to innovate life insurance and ensure that the policy does more than just offer a payout.
Offer greater financial education on death related matters
It may sound very downbeat, but life insurers need to start increasing awareness and provide more education for both the policyholder and next of kin. This can involve different topics such as how to write a will, how to understand a will, how can next of kin access information. There is a taboo around talking about death related matters, but the reality, is, love it, hate it, or loathe it, we all need to face up to our mortality. Providing resources on how to plan is better than the next of kin being left with an enormous pile of admin.
Gone are the days when life insurance products were only offered as a single product. Life insurance companies can partner with a host of relevant providers, including will writers, mental health providers, and other relevant providers. People do not have time to shop around for a host of different providers, especially when the concept of death is a rather daunting topic to begin with. Offering useful add ons to life insurance products can yield mutually beneficial outcomes for both insurance providers, policy holders and next of kin.
Offer will services
The importance of will writing cannot be understated. While will writing and life insurance should technically go hand in hand, this is not always the case. Making this a compulsory part of life insurance offerings is a cost-effective way of reducing admin for everyone involved.
These are only some of the ways I believe life insurance products can be improved. But the first step is identifying that the industry can do more to help the bereaved. Ultimately, the best products require continuously adaptation based on customer feedback. Starting with will-writing is often the simplest way to ensure life insurance products and pay outs are doing their jobs.
Mark Wood is the chairman of Everest UK