By Joseph Warne – Employee Benefits Consultant, Pareto FP

The discussion surrounding the mandatory implementation of life insurance in the UK is a multifaceted one, bringing together financial prudence, societal responsibility, and individual well-being. Who might finance it? Can the government mandate it like it does with paying your council tax?

Life insurance, as a financial safety net, offers exceptional value compared to other types of insurance, such as health or income protection. Given the significant benefits and relatively low cost, there is a compelling argument for making life insurance mandatory in the UK.

What is Life Insurance?

Life insurance provides peace of mind for you and your loved ones with a tax-free lump sum pay-out in the event of your untimely death, helping to relieve money worries during a very difficult time.  This can be paid for by your employer or individually.  When paid by your employer it is typically in the form of a multiple of your basic salary i.e. 4 x salary. 

The Current Landscape of the UK Life Insurance Market

The UK life insurance market is robust and thriving. Revenues in this sector are estimated to be in excess of £40 billion, reflecting a compound annual growth rate of 5% over the past five years. This consistent growth indicates not only the market’s stability but also its critical role in the broader financial ecosystem.

Data from the Association of British Insurers (ABI) reveals that there were 20.7 million life insurance policies in force in the UK in 2021, of those 7.4 million people were covered under group life insurance schemes provided by employers.  According to the House of Commons Library, in April to June 2024, the number of people aged 16+ in employment was 33.09 million, therefore over 13 million of the UK’s working population is still not insured. 

The Argument for Mandatory Life Insurance

Making life insurance mandatory could be seen as a natural progression to ensure financial stability for all families. Life insurance can mitigate the financial impact of unexpected deaths, preventing families from falling into financial distress. Unlike health or income protection insurance, which address immediate and ongoing health-related expenses, life insurance provides a lump sum that can cover debts, mortgage payments, education costs, and everyday living expenses.

Furthermore, mandatory life insurance could alleviate the burden on social welfare systems. By ensuring that every household has a basic level of financial protection, the government could potentially reduce the amount of social support needed for bereaved families. This shift could lead to better resource allocation and more robust social safety nets for other critical needs.

In countries like France, life insurance is mandatory when taking out certain mortgages, reflecting a broader recognition of its importance. Mandatory life insurance policies ensure that individuals and families are financially protected, thereby reducing the economic strain on social services and providing a safety net for millions of people. The implementation of similar policies in the UK could yield comparable benefits, enhancing financial security and social stability.

The Role of Businesses in Promoting Life Insurance

Businesses have a significant role to play in promoting life insurance. Offering group life insurance as part of employee benefits can provide substantial advantages. Group life insurance schemes can include additional benefits such as access to virtual GPs 24/7, bereavement counselling, counselling, physiotherapy, life coaching, legal support, funeral concierge services, discounts, wellness apps, and nutritional guides. These added benefits not only enhance employee well-being but also attract and retain top talent.

By incorporating group life insurance, businesses demonstrate a commitment to their employees’ financial and personal well-being. This approach not only supports employees but also contributes to a more stable and productive workforce. Encouraging businesses to include comprehensive life insurance packages can help bridge the gap in coverage and promote wider adoption.

Conclusion

The UK life insurance market’s strength and stability, coupled with its broad-reaching financial benefits, make a compelling case for considering mandatory life insurance. Such a move would not only protect individual families but also contribute to the overall economic stability and social welfare of the nation. As we navigate economic uncertainties and demographic changes, mandatory life insurance could be a strategic step towards ensuring a secure future for all UK residents.

Given the relatively low cost and high value of life insurance, making it a mandatory requirement could be a prudent policy decision, aligning with broader goals of financial security and societal well-being. As such, it warrants serious consideration by policymakers and stakeholders in the financial services industry. In the meantime, businesses may wish to consider its merits within their employee benefits packages, leveraging the additional services it provides to enhance employee well-being and productivity.

If you would like to discuss your employee benefit options, please contact Pareto’s Employee Benefits team