Mind the gap!
The UK’s infamous ‘protection gap’ is caused by under-insurance as much as it is by no insurance, according to research from Sunlife.
A nationally representative survey of 1,011 eighteen to sixty five year olds by the firm, found that only a third (29 per cent) of people take out life insurance when they take out a mortgage, while only a quarter (23 per cent) take out cover after the birth of a child.
However, the average life insurance payout in the UK currently stands at £51,500, which would only cover 62 per cent of the average outstanding mortgage (£83,000) in the UK.
For people taking out new mortgages, the gap is even greater – £51,500 would cover less than a third (31 per cent) of the average new mortgage, worth £167,000.
Dean Lamble, managing director at Sunlife, commented that people are treating life insurance like a type of mortgage protection.
“Of course, if for example the breadwinner in a family was to die, being able to pay off the mortgage would be a big help.
“But, while that would take a significant burden off the family, it wouldn’t leave any money to pay the ongoing household bills, provide an income or mean the everyday things could carry on.”
The research also revealed that 48 per cent of people aged eighteen to sixty five, in the UK, currently have no life cover, whilst 15 per cent did not know how much life cover they have.
Mark Dennison, principal at LightBlue UK, said that while under-insurance is a problem, some form of cover is better than nothing at all.
“Perhaps a bigger problem is that the public turn to life insurance when income protection should be the first port of call. Being able to pay off the mortgage is one thing, but you also need to be able to afford to live in the house and pay the bills and that’s where income protection can be so valuable.”
Last month, Swiss Re’s annual survey of new business for the industry stated that while there were some notable increases in cover, protection among UK citizens remains “woefully low”.
If you are unsure of whether you have an unacceptable gap in your protection requirements, then you should contact an independent broker, who will be able to advise you accordingly.