Why your life is worth less but costs more outside London

Life insurance is one of those milestone purchases – the coming-of-age parting with cash that places you firmly in the “adult” life box.

Designed to protect the people we care about (or at the very least are responsible for) with a lump sum to start to fill in the financial gap we’d leave behind should we die prematurely, most of us are prompted to buy it by a significant event – often the birth of a child.

With a protection product like this it makes sense that the older you get, the more expensive it becomes. The cover a 23- or 24-year-old would pay an average of £12.61 for comes in at £31.16 for your typical 55-64 year old, for example.

Your monthly premium will also vary depending on how long you want the cover for, ranging from as few as five, to as many as 50, years.

Then there’s the other critical, though uncomfortably un-British, decision to make – how much you think you’re worth.

The latest life insurance snapshot, compiled by price comparison site Comparethemarket.com, shows the most popular figure is more than £250,000, as we tot up the value of our incomes against outstanding mortgages, debts and other everyday costs, with another fifth opting for £200,000-£250,000.

Finally, you’ll need to decide whether you want your insurance to remain consistent for the whole period, known as ‘level term’ or you’re keen to simply protect a mortgage – a cheaper option as the payout decreases in line with your outstanding debt over time.

So far, so controllable.

But the latest analysis shows that one of the biggest differences in how much we each pay to insure our lives isn’t how old we are or how many kids we have – it’s where we live.

On the surface of it that’s no surprise. After all, these policies are really all about securing the home over the heads of the people we love if we’re no longer there. And as we know all too well, the cost of those homes, and the size of the debt to secure them in the first place, varies dramatically by location.

And, as Kamran Altaf, head of life insurance, for Comparethemarket.com notes, the gap is narrowing.

“Over the past year, we have seen some long-term trends start to reverse in the life insurance market. It is most encouraging to see a decrease in regional disparities across the life insurance market. The north-south divide has reduced significantly, paying £17.05 and £22.40 per month respectively in the northeast and London. Last year the gap was far wider at £11.98 and £28.42. The capital’s city-dwellers can now expect to pay around £22 a month for their life insurance policy – significantly less than in June 2018.

“It is unsurprising that the market has such strong regional disparities, as life insurance is inextricably linked to house prices which tend to be higher in London and the South. However, the data suggests that life insurance is becoming more affordable for those living in the capital.”

A closer look at the numbers in fact shows no correlation to current property prices at all.

The latest house price data from the Office for National Statistics (ONS) shows that despite a marked downturn, the average property price in London came in at £472,000 at the end of April this year. In the South East the figure is closer to £319,000.

But the Comparethemarket.com figures show the average monthly premium paid in London – £22.40 – is less than that paid in the South East at £23.63.

Despite paying almost £200,000 less for their homes than their London peers, East Anglians are forking out around £5 more a month for their life cover.

Most remarkably, in Northern Ireland, where the average property price is the lowest regionally at £135,000, policyholders there are paying the highest premiums – at almost £32 a month.

The Association of British Insurers (ABI) argues that looking at a regional breakdown alone doesn’t tell the full story. Certainly, thousands of people with a huge range of circumstances and needs take out life cover of varying sizes every year that will produce all manner of different premium prices.

But common sense suggests that cross-section of needs, circumstances and sums assured will exist in each of those regions too. Roughly, you’d expect the same proportion of 50-somethings to decide to take out cover in Liverpool as they would in Luton, for example. Surely a similar number of people will have half their mortgage left to pay off in Scunthorpe as in Stockwell.

Even Comparethemarket.com which produced the regional data based on thousands of customer purchases from different providers between March and May this year didn’t really have an answer.

Determining how much we pay to insure our lives (and anything else for that matter) is based on a complex series of precise calculations made in an underwriting process. It’s hard to see how that process could produce such stark differences based on geography alone.

But it’s also hard to shake the feeling that if you’re outside the capital you might be getting a worse deal on your life cover.