The term assurance market has experienced a period of inconsistent growth in recent years; however, 2018 marked the third successive year of growth in terms of sales of new contracts. This growth can largely be attributed to the non-mortgage related market with non-advised direct to consumer policies increasing in popularity. Policies linked to a mortgage have experienced little growth, with people shunning the traditional route of arranging a policy with their mortgage adviser. Consumers are favouring faster life insurance applications, although this may come at a cost for those with ongoing conditions, or who are looking for a more personalised experience.

This report examines the term assurance market, including the various segments of the market and the channels used to distribute term assurance policies. Mintel’s exclusive consumer research first examines ownership of life insurance products, before looking at whether people are likely to take out a policy in the future. It considers consumers preferences when arranging their life insurance policy, as well as general attitudes towards the application process. The research also explores what will incentivise consumers to share their financial data, and what people use as an alternative to life insurance. Finally, it looks into the mortgage application process, and whether people were offered cover during this process.

Term assurance is a common type of life insurance policy, providing cover for a limited period and hence will only pay out if the policyholder dies within that term or, in the case of some policies, is diagnosed with a terminal illness.

This contrasts with whole-of-life assurance (including over-50s guaranteed acceptance plans), which is designed to cover an individual during their entire life and is thus guaranteed to always pay out.

Term assurance policies can be written on a single life, joint life (first or second death) or on a life of another basis. They are primarily used to cover the financial responsibilities for the insured and/or their beneficiaries, the most common of which is a mortgage. Indeed, many people take out term assurance when they buy their first home, linking the term of the policy with the term of the loan (typically 25-30 years). Hence, the market comprises two distinct product segments:

• mortgage term assurance (where the sum insured correlates with the outstanding mortgage balance and is, therefore, usually arranged on a decreasing term basis)

• other term assurance (where the sum insured is not linked to a mortgage and is usually arranged on a level-term basis).

Both of these product types can be further subdivided into:

• Decreasing term assurance (where the sum insured decreases over the term, thereby reducing the cash payout the longer the term runs) is often taken out by repayment mortgage holders to cover their outstanding mortgage balance should they die during the mortgage term.

• Level-term assurance policies (where the sum insured remains the same over the duration of the policy term) tend to be more expensive than decreasing term policies.

Premiums are based primarily on the age and health of the life assured, the sum assured and the policy term. The older the life assured or the longer the policy term, the higher the premium will generally be.

Family income benefit is similar to traditional term assurance, but rather than providing beneficiaries with a lump-sum payout, it provides them instead with a fixed, tax-free, regular income. The income payments are usually paid on a monthly basis and run from the date of death, until the end of the policy term, as chosen at the outset by the policyholder.

Critical illness cover is often sold as an add-on or ‘rider’ to term assurance. It is designed to pay a lump sum to the policyholder on the diagnosis of certain life-threatening but not necessarily fatal conditions such as heart attack, stroke, certain cancers, multiple sclerosis, loss of limbs, etc. It can be bought on its own (ie as a standalone policy).

Income protection is a long-term policy that is designed to replace a proportion of lost earnings in the event that the policyholder is unable to work due to sickness, accident or injury. Subject to certain conditions and level of cover, the insurer will pay, after a pre-agreed deferred period (eg four, eight, 13, 26 or 52 weeks), a tax-free monthly benefit to the policyholder if they are too ill to work. The amount will usually be equivalent to between 50% and 65% (but can be up to 75%) of the individual’s gross earnings and is paid until the policyholder reaches their selected retirement age (usually between 50 and 70), or their recovery or death if these are sooner. The monthly premiums are determined via a detailed and personalised underwriting approach, and are usually fixed for the term of the policy. The longer the deferred period selected, the lower the premium.

This type of cover is also known as permanent health insurance or family income benefit and can be held jointly. It should not be confused with ASU insurance (see below).

ASU (accident, sickness and unemployment) insurance is designed to provide cover for accidental death, disability and sickness, as well as unemployment, for a limited period. In the event of a claim, benefits are typically paid out on a monthly basis for up to a maximum of one or two years (unlike with an income protection policy, which is designed to pay out until the insured’s specified retirement age). As with other types of insurance, cover can be extended to a partner and/or children. This product is sometimes marketed as a form of short-term ‘income protection’.

Related short-term policies include those that only cover sickness and/or accident, as well as mortgage protection insurance.

The vast majority of protection business is generated by intermediaries, on an advised basis. Following new regulation, linked to the Retail Distribution Review, introduced on 1 January 2013, intermediaries are now categorised into two main groups:

Independent – an adviser or firm that is able to consider and recommend all types of product from all firms across the whole market.

Restricted – an adviser or firm that only recommends certain products, product providers or both. This category includes tied advisers, where the firm or adviser works with one or a select number of product providers and only considers products within that limited range. It also includes those who specialise or focus on a particular market, such as protection or pensions (even where they consider the full range of products from all providers within that market segment).