Put some shock absorbers in place to deal with the unexpected
Awareness of ‘protection’ products is high but a worrying number of people are failing to take action, leaving their families vulnerable to change. Research from Scottish Widows shows that nearly three quarters (74 per cent) of people are putting their families’ financial security at risk by failing to protect their future through life insurance, critical illness or income protection.
Vulnerable families
The fourth Scottish Widows Protection Report, based on research among more than 5,000 UK adults [1], shows a marked annual decline in the number of people taking out life insurance (38 per cent, down 6 percentage points from 2011), income protection (5 per cent, down
2 percentage points) and critical illness cover (11 per cent, down 1 percentage point), leaving themselves and their families vulnerable should the unexpected happen and their circumstances change.
Change in economic circumstances
Against this backdrop of decreased protection, the report indicates that families are even more vulnerable to change in their economic circumstances in 2012. Over half of respondents
(52 per cent) now rely on just one income, echoing recent concerns from the Institute of Fiscal Studies, who stated that average UK household incomes have dropped by 6.4 per cent in real terms over the last two years.
Surviving financially
More people are saving (up 5 percentage points from 2011) and nearly 40 per cent of people are paying attention to paying off their household debts. However, even though the number of people saving has increased, respondents have little confidence that their savings will cover them in the event of a change of circumstances, with 60 per cent believing they would only survive financially for a short period of up to six months.
Losing your income
Almost one in three households (28 per cent), report that they would have used up their savings within a month if they lost their income, a fifth of people would struggle to pay their mortgage and a third would find it difficult to cover their household bills within a year of losing their income.
In the event of losing a partner, 29 per cent of people say they would need to rely on their savings to cope financially, with 16 per cent saying they would turn to state benefits, even as worries over spending cuts prevail. 14 per cent admit that they just don’t know how they would cope should something happen to their partner.
Essentials vs LUXURIES
The findings demonstrate that more people consider tangible items like having broadband (74 per cent), a car (75 per cent), a phone (57 per cent) and home ownership (57 per cent) as essential compared with protecting their family against critical illness (29 per cent) and loss of income (23 per cent).
Worryingly, more than a third of people view protecting their family in the event of illness a luxury and almost four in ten see protecting their income in the same light. A night out once a week (70 per cent), shopping trips (74 per cent), gym memberships (60 per cent) and family outings (50 per cent) are considered luxuries by many.
Who’s protected?
The report finds that buying a home remains the primary trigger for taking out protection cover. This was given as the main reason for one in three critical illness and 27 per cent of income protection policies.
The biggest barrier to protection, especially when it comes to critical illness cover, is cost. Of those without a policy, 22 per cent say that they cannot afford cover and 15 per cent consider it to be a waste of money.
Instead, people will often spend any disposable income left at the end of the month on more tangible items that can be seen and used immediately. However, we would firmly advise families put some shock absorbers in place to deal with the unexpected and avoid any hardship that could be caused as a result.
[1] The fourth annual Consumer Protection Report from financial provider Scottish
Widows takes an in-depth look at the habits and attitudes of the UK adult population in order to analyse their protection provision.
The survey was carried out online by YouGov, who interviewed a total of 5,086 adults between 4-9 January 2012. The figures have been weighted and are representative of all UK adults (aged 18+).
