New analysis suggests that a significant number of UK households may be ‘underinsured’, with existing life insurance policies failing to keep pace with evolving family and financial circumstances. What might have been adequate cover years ago, such as a policy taken out to clear a mortgage, often proves insufficient as families grow, outgoings increase, and new dependents emerge.
This issue is not isolated, with research commissioned by the Financial Conduct Authority (FCA) revealing that 58% of adults in the UK do not hold any protection product, including life insurance, critical illness cover, or income protection. The FCA identifies cost, uncertainty about the range of products available, and difficulties navigating the purchasing process as key deterrents for individuals considering cover. Insurance brokers, such as LifeSearch, acknowledge that while obtaining comparative quotes online is more accessible than ever, understanding the specific type and level of cover required remains a considerable challenge for many consumers.
A common trigger for revisiting existing policies is a shift in personal circumstances. For instance, a policy initially designed solely to cover a mortgage may become inadequate with the addition of children, increased monthly outgoings, and a greater number of individuals relying on household income. While the government provides an initial lump sum of £3,500 in bereavement support for those with children under 16 (or under 20 in full-time education), and potentially 18 monthly payments of £350 for higher rate recipients, this support is unlikely to replace a long-term income or cover substantial household costs for an extended period.
Beyond the immediate concern of life insurance, many couples with dependents overlook the more probable risk of being unable to work due to injury or illness. Office for National Statistics (ONS) data indicates that a 50-year-old woman has a 0.35% chance of dying in the next 12 months, compared to a 0.53% chance for a man of the same age. However, the likelihood of being off work for two months or more stands at 11%, with a 6% chance of experiencing a serious illness, according to data from insurance broker Drewberry for a 50-year-old non-smoker. While many workplace benefits offer short-term sickness pay, these often cease after approximately a year, leaving a significant financial gap.
The complexity of navigating different insurance options and determining appropriate coverage levels means many individuals either postpone taking out policies or remain with outdated ones. This leaves families potentially vulnerable to financial hardship should the unexpected occur. Experts advise that regular reviews of protection policies are crucial to ensure they align with current life stages and financial responsibilities.