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Term Assurance - UK - July 2014

“Increased mortgage lending in 2013 did not result in a corresponding increase in new term assurance sales. Regulatory demands have made cross-selling term assurance products less of a focus for intermediaries. Developing profitable and efficient direct-to-consumer channels will therefore become an increasingly important priority for providers in order to reduce their reliance on intermediaries.”
- Alexander Hiscox, Senior Financial Services Analyst
This report looks at the following issues:

  • Direct-to-consumer channels will become increasingly important for providers
  • Consumers require financial education in order to close the protection gap

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Table of contents

  1. Introduction

      • Report scope and market definition
        • Abbreviations
        • Executive Summary

            • The market
              • Term assurance sales dip in 2013
                • Slow premium growth predicted for the term assurance market
                  • Figure 1: Forecast of total new individual term assurance premiums, at current prices – fan chart, 2009-19
                • Market factors
                  • Improving housing market yet to benefit the term assurance market
                    • Regulation has slowed advised sales
                      • Company, brands and innovation
                        • Legal & General leads the market
                          • Figure 2: Top five individual term assurance providers, by sales volumes, 2013
                        • Little innovation in the term assurance market
                          • Adspend increased by 52% in the 12 month to May 2014
                            • Only around a tenth of term assurance sales non-advised in 2013
                              • The consumer
                                • A quarter of consumers own term life insurance
                                  • Figure 3: Ownership of life insurance products, May 2014
                                • The majority of life insurance policies are purchased with advice
                                  • Figure 4: Sources consulted when purchasing a life insurance policy, May 2014
                                • The majority of consumers are positive about the application process
                                  • Figure 5: Ways of arranging term assurance, May 2014
                                • Starting a family is the main trigger for taking out life insurance
                                  • Figure 6: Triggers for arranging life insurance, May 2014
                                • Consumers are aware of the importance of owning life insurance, but often fail to purchase
                                  • Figure 7: Attitudes towards life insurance, May 2014
                                • What we think
                                • Issues and Insights

                                    • Direct-to-consumer channels will become increasingly important for providers
                                      • The facts
                                        • The implications
                                          • Consumers require financial education in order to close the protection gap
                                            • The facts
                                              • The implications
                                              • Trend Application

                                                • Term assurance providers should illustrate the dangers of not having life protection
                                                  • Quick quotes for simple policies
                                                    • Engaging with consumers early to help them lock-in low premiums
                                                    • Market Drivers

                                                      • Key points
                                                        • The improved economic outlook should benefit the term assurance market
                                                          • Increasing number of housing transactions has failed to boost the term assurance market
                                                            • Figure 8: Number of UK residential property transactions with a value of £40,000 upwards – seasonally adjusted, Q1 2007-Q1 2014
                                                          • More first-time buyers presents opportunities for the term assurance market
                                                            • Figure 9: Number of loans for house purchase, by type of borrower, 2007-13
                                                          • Term assurance and whole of life policies dominate the protection market
                                                            • Figure 10: Number of individual protection policies in force, by type, 2011-12
                                                          • Term assurance policies are almost guaranteed to pay out claims
                                                            • Figure 11: Number of claims paid out across the protection industry, 2013
                                                          • Regulation and legislation
                                                            • Gender directive distorts sales figures in the life insurance industry
                                                              • Introduction of MMR will mean that mortgage advisers are short of time
                                                                • The introduction of the RDR has resulted in a reduction of bancassurance sales
                                                                  • Solvency II Directive continues to be delayed
                                                                  • Who’s Innovating?

                                                                    • Key points
                                                                      • A lack of innovation in the term assurance market
                                                                        • Zurich launches Investment Life Cover for investments held on its platform
                                                                          • Ageas launches relevant life insurance product
                                                                          • Market Size and Forecast

                                                                            • Key points
                                                                              • The value of term assurance premiums decreased by 14% in 2013
                                                                                • Figure 12: New individual term assurance sales and average annual premium, 2009-13
                                                                              • Number of mortgage term assurance sales decreases by 11% in 2013
                                                                                • Figure 13: Volume of new individual regular-premium term assurance policy sales, by policy type, 2009-13
                                                                              • The average cost of protection term assurance continues to decrease
                                                                                • Figure 14: Average new premium – mortgage term assurance vs protection term assurance, 2009-13
                                                                              • Market forecast
                                                                                • Slow premium growth predicted for the term assurance market
                                                                                  • Figure 15: Forecast of total new term assurance premiums, at current prices – Fan chart 2009-19
                                                                                  • Figure 16: Forecast of new individual term assurance premiums, at current and constant prices, 2009-19
                                                                                • Forecast methodology
                                                                                  • Fan chart explanation
                                                                                  • Market Share

                                                                                    • Key points
                                                                                      • Legal & General remains the largest term assurance provider
                                                                                        • Figure 17: Top five individual term assurance providers, by sales volumes, 2011-13
                                                                                    • Companies and Products

                                                                                      • Ageas
                                                                                          • Figure 18: Key financial data for Ageas, 2012-13
                                                                                        • Aviva
                                                                                            • Figure 19: Key financial data for Aviva plc, 2012-13
                                                                                          • Friends Life
                                                                                              • Figure 20: Key financial data for Friends Life, 2012-13
                                                                                            • Legal & General
                                                                                                • Figure 21: Key financial data for Legal & General, 2012-13
                                                                                              • Scottish Widows
                                                                                              • Brand Communication and Promotion

                                                                                                • Key points
                                                                                                  • Adspend increased by 52% in the 12 months to May 2014
                                                                                                    • Figure 22: Total advertising expenditure on life products, by product category, 2011/12- 2013/14
                                                                                                  • Smart Insurance continues to top adspend with TV campaign
                                                                                                    • Figure 23: Top ten advertisers of (Term) life insurance products, 2011/12-2013/14
                                                                                                  • TV adspend doubles as providers look to boost product awareness
                                                                                                    • Figure 24: Advertising expenditure on (term) life insurance products, by media type, 2011/12-2013/14
                                                                                                  • A note on adspend
                                                                                                  • Channels to Market

                                                                                                    • Key points
                                                                                                      • Changes to ABI categories explained
                                                                                                        • Only around a tenth of term assurance sales were non-advised in 2013
                                                                                                          • Figure 25: Mortgage and protection term assurance premiums, by distribution channel, 2013
                                                                                                        • Intermediaries are the most significant channel for term assurance sales
                                                                                                          • Bancassurance term assurance sales suffer
                                                                                                            • Figure 26: Mortgage term assurance and protection term assurance bancassurance premiums, 2009-13
                                                                                                        • Ownership of Life Insurance Products

                                                                                                          • Key points
                                                                                                            • A quarter of consumers own term life insurance
                                                                                                              • Figure 27: Ownership of life insurance products, May 2014
                                                                                                            • Awareness of life insurance products can be improved
                                                                                                              • Consumers with higher household incomes are more likely to own life insurance
                                                                                                                • Figure 28: Ownership of life insurance, by gross annual household income, May 2014
                                                                                                              • Consumers who rent are less likely to have life insurance
                                                                                                                • Figure 29: 30: Ownership of life insurance, by housing situation and presence of own children, May 2014
                                                                                                            • Sources Consulted when Purchasing Life Insurance

                                                                                                              • Key points
                                                                                                                • The majority of life insurance policies are purchased with advice
                                                                                                                  • Figure 31: Sources consulted when purchasing a life insurance policy, May 2014
                                                                                                                • Around a third of consumers consulted with bank advisers
                                                                                                                  • Under-35s more inclined to use online sources to find term assurance cover
                                                                                                                    • Figure 32: Sources consulted when purchasing life insurance, by age, May 2014
                                                                                                                • Arranging Term Assurance

                                                                                                                  • Key points
                                                                                                                    • The majority of consumers are positive about the application process
                                                                                                                      • Figure 33: Arranging term assurance, May 2014
                                                                                                                    • A quarter of consumers don’t find policy documents easy to understand
                                                                                                                      • Consumers want quality of cover as well as low cost
                                                                                                                        • Figure 34: Arranging term assurance, by Ownership of Life Insurance Products, May 2014
                                                                                                                      • Under-35s are more likely to use online tools to arrange life insurance
                                                                                                                        • Figure 35: Arranging term assurance, by age, May 2014
                                                                                                                      • Only a quarter of consumers chose to write their plan in trust
                                                                                                                        • Aggregators are well suited to selling simple products
                                                                                                                          • Figure 36: Ways of arranging term assurance, by sources consulted when purchasing life insurance, May 2014
                                                                                                                      • Triggers for Arranging Life Insurance

                                                                                                                        • Key points
                                                                                                                          • Starting a family is a major trigger for taking out life insurance
                                                                                                                            • Figure 37: Triggers for Arranging life insurance, May 2014
                                                                                                                          • Under-25s could be educated on how life insurance works
                                                                                                                            • Figure 38: Triggers for arranging life insurance, by age, May 2014
                                                                                                                          • Consumers claim an increase in income would increase consideration of life insurance
                                                                                                                            • Figure 39: Triggers for arranging life insurance, by socio-economic group and current financial situation, May 2014
                                                                                                                        • Amount Prepared to Pay for Life Insurance

                                                                                                                          • Key points
                                                                                                                            • The maximum the majority would pay for term assurance is £10-£15 per month
                                                                                                                              • Figure 40: Amount prepared to pay for life insurance, May 2014
                                                                                                                            • Average premiums are higher than most consumers would be prepared to pay
                                                                                                                            • Attitudes towards Life Insurance

                                                                                                                              • Key points
                                                                                                                                • Consumers are aware of the benefits of owning life insurance, but often fail to purchase it
                                                                                                                                  • Figure 41: Attitudes towards life insurance, May 2014
                                                                                                                                • Under-25s have a lower awareness of the benefits of life insurance
                                                                                                                                  • Figure 42: Attitudes towards life insurance, by age, May 2014
                                                                                                                                • Parenthood changes how consumers perceive of life insurance
                                                                                                                                  • Figure 43: Attitudes towards life insurance, by presence of children, May 2014
                                                                                                                                • Home ownership stops consumers from thinking life insurance is a luxury product
                                                                                                                                  • Figure 44: Attitudes towards life insurance, by housing situation, May 2014
                                                                                                                              • Appendix – Market Size and Forecast

                                                                                                                                  • Figure 45: Forecast for new individual term assurance premiums – best- and worst-case scenarios, at current prices, 2014-19
                                                                                                                              • Appendix – Ownership of Life Assurance

                                                                                                                                  • Figure 46: Most popular ownership of life insurance, by demographics, May 2014
                                                                                                                                  • Figure 47: Next most popular ownership of life insurance, by demographics, May 2014
                                                                                                                              • Appendix – Sources Consulted when Purchasing Life Insurance

                                                                                                                                  • Figure 48: Most popular sources consulted, by demographics, May 2014
                                                                                                                                  • Figure 49: Next most popular sources consulted, by demographics, May 2014
                                                                                                                                  • Figure 50: Other sources consulted, by demographics, May 2014
                                                                                                                              • Appendix – Arranging Term Assurance

                                                                                                                                  • Figure 51: Arranging term assurance – I chose my policy because it gave me the best level of cover I can afford, by demographics, May 2014
                                                                                                                                  • Figure 52: Ways of arranging term assurance – I found the application process easy when purchasing my policy, by demographics, May 2014
                                                                                                                                  • Figure 53: Ways of arranging term assurance – I found the policy documents easy to understand, by demographics, May 2014
                                                                                                                                  • Figure 54: Ways of arranging term assurance – I compared several different companies before I chose my provider, by demographics, May 2014
                                                                                                                                  • Figure 55: Ways of arranging term assurance – I chose to purchase my policy from a company that has a good reputation for paying out on claims, by demographics, May 2014
                                                                                                                                  • Figure 56: Ways of arranging term assurance – I chose to use a company that I had used before, by demographics, May 2014
                                                                                                                                  • Figure 57: Ways of arranging term assurance – I chose my policy because it was the lowest quote, by demographics, May 2014
                                                                                                                                  • Figure 58: Ways of arranging term assurance – I checked online customer reviews before I chose my provider, by demographics, May 2014
                                                                                                                                  • Figure 59: Ways of arranging term assurance – I found it difficult to choose between providers, by demographics, May 2014
                                                                                                                                  • Figure 60: Ways of arranging term assurance – I chose to place my policy in a trust so I don’t have to pay inheritance tax, by demographics, May 2014
                                                                                                                                  • Figure 61: Arranging term assurance, by sources consulted when purchasing life insurance, May 2014
                                                                                                                                  • Figure 62: Arranging term assurance, by sources consulted when purchasing life insurance, May 2014 (continued)
                                                                                                                              • Appendix – Triggers for Arranging Life Insurance

                                                                                                                                  • Figure 63: Most popular term assurance motivators, by demographics, May 2014
                                                                                                                                  • Figure 64: Next most popular term assurance motivators, by demographics, May 2014
                                                                                                                              • Appendix – Amount Prepared to Pay for Life Insurance

                                                                                                                                  • Figure 65: Maximum price non-customers would be willing to pay for life insurance, by demographics, May 2014
                                                                                                                              • Appendix – Attitudes towards Life Insurance

                                                                                                                                  • Figure 66: Agreement with the statement ‘People with dependents should have life insurance’, by demographics, May 2014
                                                                                                                                  • Figure 67: Agreement with the statement ‘Life insurance provides peace of mind’, by demographics, May 2014
                                                                                                                                  • Figure 68: Agreement with the statement ‘It’s better to arrange life insurance when you are young’, by demographics, May 2014
                                                                                                                                  • Figure 69: Agreement with the statement ‘Life insurance is too expensive if you have pre-existing medical conditions’, by demographics, May 2014
                                                                                                                                  • Figure 70: Agreement with the statement ‘I don’t want to think about needing life insurance’, by demographics, May 2014
                                                                                                                                  • Figure 71: Agreement with the statement ‘Life insurance is a luxury product, rather than an essential’, by demographics, May 2014
                                                                                                                                  • Figure 72: Agreement with the statement ‘Having life insurance is more important than covering your personal belongings’, by demographics, May 2014
                                                                                                                                  • Figure 73: Agreement with the statement ‘Life insurance companies can be trusted to act in their customers’ best interests’, by demographics, May 2014
                                                                                                                                  • Figure 74: Agreement with the statement ‘If you’re fit and healthy you shouldn’t need life insurance’, by demographics, May 2014

                                                                                                                              Companies Covered

                                                                                                                              • Aberdeen Asset Management PLC
                                                                                                                              • Ageas
                                                                                                                              • Aviva Plc
                                                                                                                              • AXA UK plc
                                                                                                                              • Barclays Bank plc
                                                                                                                              • BUPA
                                                                                                                              • Friends Provident plc
                                                                                                                              • Groupama Insurances
                                                                                                                              • Grupo Santander Central Hispano S.A.
                                                                                                                              • HBOS plc (Halifax Bank of Scotland)
                                                                                                                              • John Lewis Partnership
                                                                                                                              • Legal & General Group PLC
                                                                                                                              • Lloyds Banking Group
                                                                                                                              • Nationwide Building Society
                                                                                                                              • Pearl Group Limited
                                                                                                                              • Royal Bank of Scotland Group plc
                                                                                                                              • Sainsbury's Bank
                                                                                                                              • Scottish Widows Bank plc
                                                                                                                              • Sesame Bankhall Group Limited
                                                                                                                              • Skipton Building Society
                                                                                                                              • Swiss Re
                                                                                                                              • Tesco Personal Finance Limited

                                                                                                                              Term Assurance - UK - July 2014

                                                                                                                              £1,995.00 (Excl.Tax)