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New research has revealed the barriers that stop people from buying life insurance or income protection products, with not seeing the benefit of such protection sitting just behind the thought that it is too expensive as the main reason for not taking out cover.
The survey, conducted by Royal London, revealed that 26% of UK adults do have a life insurance policy, but only 6% have critical illness cover and a lesser 4% have income protection insurance. While it is important to have life insurance – and a quarter of adults still seems low when considering the risk of not having it for those with children or a mortgage, or those who are the main earner – there clearly also needs to be more education about the importance of having critical illness cover and income protection in place.
These latter policies are designed to help when it's not the very worst that happens (i.e. death), but there is still a significant loss of some sort to deal with (health or income, respectively). Perhaps unsurprisingly, the number one reason why people do not take out such an insurance policy is that they consider it too costly, with 29% not taking out life insurance because of this, 32% not taking out critical illness cover, and 31% not taking out income protection due to price.
In reality, analysis of the premiums Royal London customers pay reveals that the average life insurance premium is £21.28 per month for over £120,000 of cover and the average critical illness cover premium is £30.58 per month for over £71,500 of cover. This is less than the average cost of car insurance and is only an indication from one provider, so there is no reason why customers shouldn't be able to find premiums below this if they compare policies or reduce cover.
The other top two reasons survey respondents gave for not having insurance were not seeing the benefit of it (21% for life insurance, 17% for critical illness cover and 20% for income protection), and not trusting insurance companies to pay out in the event of a claim (14%, 19% and 18% respectively). Yet the most recent industry figures show insurers pay out in 97.2% of all claims.
That just leaves respondents not seeing the point. Despite not having cover, 38% did believe it is important to ensure that their family and dependants are looked after financially should they die and 47% agreed that life insurance is essential for anyone with a mortgage or dependents. In particular, those with children under 18 were much more likely to believe that all three types of product are needed, in particular critical illness cover (21% compared to 9% who don't have children).
Clearly there's a disconnect between people's desire to protect their loved ones should something happen to them, and their reluctance to take out the protection needed to ensure this. Part of this could be due to a lack of understanding about what could happen to people during their working life, with the big risks (death) possibly hiding the smaller risks that could have just as big an impact.
Indeed, respondents were more likely to think they will die (22%) than to be made redundant (15%), contract a serious health condition or illness (15%), go on sick leave for three months or more (11%) or have an accident preventing work (9%). Yet 25% of those polled had been made redundant or lost their job at some point, while 15% had been off sick for three months or more or been diagnosed with a serious health condition or illness.
Debbie Kennedy, group head of Protection Strategy at Royal London, added: "Our research shows that people are far more likely to think they will die during their working life than be hit by redundancy or critical illness, yet official statistics [from ONS 2015 provisional data] show that more than four times as many people were made redundant than died early – showing the importance of having cover beyond life insurance."
Are you aware of your risks, and what protection products could do to mitigate them? Why not compare life insurance and/or income protection quotes to see if the peace of mind could outweigh the costs.
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