Savings gap
The ability of UK consumers to absorb the financial impact of a premature death is also hampered by the nation’s low savings rate. Despite our earnings being similar to our European neighbours, the UK savings rate as a percentage of gross income is around two-thirds of the European average.
In fact, as many as a third of UK adults have no savings or less than £1,000 in their bank accounts, according to a separate analysis, meaning any sudden downturn in finances can have a significant impact.
While households built up savings during the Covid-19 pandemic, half of those surveyed have been forced to use these in the years since to offset rising costs. Meanwhile, rising costs have not been met with significant rises in real wages to combat the need to dip into a limited savings pot.
The ALFI model
Resources of UK households are already stretched and the loss of a wage earner unexpectedly would clearly have a significant financial impact.
In the context of this current economic climate, we have seen people decide to cancel life insurance, viewing policies as an unnecessary extra expense that does not provide enough perceived value during a time of economic hardship.
Beagle Street therefore decided to devise a study that would support advisers in demonstrating the value of cover, and created the adverse life financial impact (ALFI) model.
The ALFI model was developed around a scenario of two equal-earning partners in a household with two children. The model considers a 10-year period during which surviving children are likely to grow to maturity and begin to establish financial independence.
Only accounting for essential household spending and mortgage payments, the study found surviving parents would have to deal with an annual shortfall of more than £19,000 annually in the event of an unexpected death – a tough to afford financial impact given the average UK take-home pay of just £28,000.
When we dig deeper into the numbers, we find regional disparities throughout the UK due to differences in income, housing prices and the cost of living. However, the 10-year financial impact of a premature death is no less than £13,000 a year in any part of the country.
Moreover, given income disparities across regions, the weight of the financial burden may be the same, even if the numerical impact is lower.
Since the study provides a baseline estimate, with anything not deemed an essential living cost – such as holidays or leisure activities – excluded from the calculation, the actual financial burden is likely to be much greater.
