Why people don't life insurance or critical illness cover?

Two thirds (65%) of UK adults have no life insurance or other protection cover, more so in London (72%) and in core cities (70%).

Contrast this with motor insurance where 61% of adults have cover and 60% of UK adults have home contents insurance and its clear that where it’s not mandatory to have insurance, gaps appear.

These findings are revealed in the Financial Conduct Authority’s Financial Lives study, which comprises data from 13,000 consumer interviews, making it one of the most comprehensive studies of attitudes towards financial products available on the market.

of UK adults have no life insurance or other protection cover, according to the FCA’s Financial Lives Study

Location and age could explain why people in urban areas are less likely to have life insurance and critical illness cover. Protection policies are more likely to be taken out by people over 30 and under 85 and the average age of inhabitants is lower in London than elsewhere in the UK. Home ownership rates are also lower in urban areas and there’s a correlation between home ownership and buying protection.

According to the FCA, adults living in villages have higher levels of wealth and are more likely to use regulated financial advice.

Demographics aside, it’s logical to assume that people simply don’t understand the benefits of these vital insurance products, or believe they cannot afford them or in full knowledge of the facts and the ability to pay for a premium, just decide not to. The vast majority of the population has dependants, whether that is a partner or spouse, relatives they look after, or children.

Surprisingly, in the same study, 78% of adults ‘would rather be safe than sorry’ when it comes to their finances, which is at odds with their insurance purchasing habits.

of adults ‘would rather be safe than sorry’ when it comes to their finances

A lack of protection products could be indicative of a general apathy towards financial services product among the wider population.

Worryingly, it’s not just protection gaps that need to be bridged. 31% of adults have no private pension provision. With less money coming in at that stage, logically you would assume they’re even less likely to consider protection.

How can advisers bridge the gap?

This requires a two-pronged approach. Firstly, the responsibility for raising awareness of protection products should fall on the government, bodies like the FCA and large insurers with the ability to reach consumers. It’s never an easy situation for people to contemplate illness or death and the impact it might have but the message needs to be constantly driven home to make sure it sticks.

Secondly, financial advisers need to ensure protection commands the same level of attention as investments when creating financial plans for clients. At Wren Sterling we use cashflow planning software to show clients where their investments, savings and assets will take them and how they can improve the situation. We also show clients how a period out of work through injury or illness could affect their plans to highlight the importance of arranging adequate cover.

For an initial consultation on your ‘protection gap’ get in touch with a local financial adviser today.

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