When was the last time you reviewed the recipients of your insurance policies? Insurance provider Phoenix Life has found that the majority of people have forgotten to update their policies after setting them up. This could result in money going to the wrong people in the result of a payout.
Research by Phoenix Life has identified a potential insurance crisis that could affect millions of policy holders. The company found that 62 per cent of life insurance policyholders have neglected to review their recipients – that is, the individual(s) to whom the policy will pay out in the event of the holder’s death.
Although not necessarily a problem if the policyholder’s circumstances and relationship status haven’t changed, failure to review a policy can lead to significant problems if the holder has (for example) divorced, separated, remarried or had more children, or if the intended recipient has died. In the worst cases, a person’s life insurance may for instance pay out to an ex-spouse rather than their existing spouse, causing serious financial difficulties for their new family.
The stats are similar for other types of policy too, including income protection, critical illness and redundancy cover policies, as well as personal pensions. In all of these cases more than 6 out of 10 policy or pension holders has failed to update their recipients since taking them out. Statistically, a significant number of these individuals will have altered circumstances that mean their policy no longer pays out to the right person.
Lack of awareness among insurance policyholder
The problem appears to stem from a lack of awareness among policyholders. From a sample of 2,000 adults, Phoenix Life found that 54 per cent of those with a pension didn’t know that the money would go to the beneficiary named on the pension scheme rather than the main beneficiary named in their will. A general disengagement from personal finance is also a contributing factor – over half of those surveyed didn’t know what policies their parents hold, while 73 per cent weren’t aware of how their siblings are insured.
In some cases this can lead to an unexpected windfall. A fifth of the adults asked had benefitted from a previously unknown policy held by a family member. In other cases though, this lack of knowledge and oversight can cause problems further down the line.
Time to check policies and pensions
For Phoenix Life’s Consumer Director Dave Woollett, the solution to this problem needs to be twofold.
‘Policyholders should inform their recipients about the policy, otherwise they won’t know to make a claim,’ he said, adding that people also need to check their financial policies on a fairly regular basis to make sure they are all up-to-date.
Woollett beleives that the root of the problem is the sheer number and range of policies that people tend to take out over their lifetimes. It can be easy to store paperwork away and forget about it or lose it, leading to a situation where the original recipients remain in place throughout the entire length of the policy. It’s therefore highly advisable, when taking out a new policy, to store the key details securely online so you can access them readily from anywhere, both now and in the future. Existing policies should also be documented in the same way, to make it easier to see exactly what is held.
Updating your policy is particularly important after certain life events. Many people approaching retirement age may unwittingly be on a course to having their money go to ex-spouses and partners. In 2018 research by Royal London found that as many as three quarters of a million people could unknowingly still have a former partner in their list of beneficiaries.
By checking your policies and pensions regularly, as well as making sure your will is updated as you go through life, you can ensure your money always goes to the people you want it to.
A version of this article was previously published by Unbiased on 4th March 2019