New bereavement support is a drop in the ocean

The government has increased the amount that millions of families would receive if a breadwinner dies. So why do we remain woefully unprepared?

New payments for bereaved families won't stop money problems after a loss.

While we were all watching Obama bid farewell and wondering just how long the FTSE’s winning streak would go on for last week, the government made a small announcement that could make a huge financial difference to those who have suddenly lost the closest person to them. But most of us have no idea it even exists.

Widows and Orphans

Until now, anyone whose spouse or partner died was entitled to a payment under a complex system that included Bereavement Payment, Bereavement Allowance and Widowed Parent’s Allowance. The initial lump sum plus monthly payments for 12 months was only available to those aged over 45 when their partner died, the payments were taxed, and were included for calculating means-tested benefits.

Decades overdue for improvement, it was originally created in the 1920s to help support widows and orphans when they lost a male adult’s income. Remarkably, the payment was only extended to widowers as recently as 2001.

As of April this year though, a major shake-up in the way the bereaved are financially supported by the state means a new Bereavement Support Payment will provide a higher lump sum of £3,500 for all those with children and £2,500 for those without, followed by a further 18 monthly instalments of £350 for those with children and £100 for those without.

Crucially, for those who lose their partner on or after 6th April this year who had paid sufficient National Insurance, it will be available to claimants of any age up to the state pension age, won’t be taxed and is ignored for the purpose of means-tested benefits.

Counting the cost

But while they support the changes, protection experts warn that even the new and improved system would be a drop in the ocean when it comes to maintaining their current standard of living if the main breadwinner dies.

“The more support people can get following the loss of a loved one the better,” says Stephen Crosbie, Protection Director at Aegon. “However, people should be looking to make arrangements beyond the Bereavement Support Payment, as it is unlikely to provide the financial support needed to maintain their current standard of living should they lose the income from the main breadwinner in the household.”

When the unexpected happens (around 191,000 people lost their partner in 2014) the financial impact isn’t just about paying for a funeral, sorting out their estate or trying to cope with one lost income either.

One recent study into the socio-economic costs of bereavement in Scotland, for example, found that the bereaved were significantly less likely than the general population to be employed the year of the death and for two years afterwards.

Indeed, their own mortality rate is also almost 20 per cent higher than among those who aren’t grieving, the effect of which could be disastrous for any children left behind.

And yet research from Royal London suggests that 70 per cent of us are entirely unprepared for either the financial or practical effect of losing our partner.

Far more UK adults believe they will die within their working lives than get made redundant or suffer a major illness. Half of us think life insurance is essential for anyone with a mortgage or dependents, and 40 per cent think it’s important to ensure their family is looked after if they pass away. And yet just 26 per cent of us have a life insurance policy in place.

Dispelling the myths

Why? Because either we don’t think it’s worth the money, we don’t see the benefit of this kind of insurance, and we sure as hell don’t expect insurers to pay out if we do claim.

In fact, the latest industry figures show insurers pay out on more than 97 per cent of all claims.

As for cost, protection adviser LifeSearch estimates that families could secure, for example, £100,000 worth of life insurance – the equivalent of four years of the average UK household income – on a non-smoker in good health for a 25-year term at a remarkably low cost.

At age 30, this could cost as little as £5.38 a month from LV=, or £8.71 if the breadwinner is aged 40.

Even at aged 50, Scottish Widows may provide the same kind of cover for only £20.75 a month.

Further help

The Money Advice service provides detailed information about dealing with finance after the death of a partner here, and advice on claiming death benefits here.

Other sources of support include:

Cruse Bereavement Care

Winston's Wish, the charity for bereaved children

and

Dying Matters, for end of life and death care, information and support