8.5 million UK households would not last the week on their savings, yet few consider income protection insurance as a safety net
Adviser quote portals iPipeline and IRESS’ The Exchange reported a “notable rise” in IP enquiries towards the end of 2014. iPipeline saw a 5% increase from November to January when compared to the previous quarter, and a 65% increase on the same period in the previous year.
The Exchange also saw an 8% increase in income protection quotes in November and a 14% increase in December 2014, when compared to the same months in 2013.
Michael Aldridge, sales director at London & Country said: “We saw good sales growth for income protection towards the end of 2014 and we’re pleased to say it’s a trend that appears to be continuing into 2015. The need to raise awareness of the benefits of income protection is great and we hope that the high-profile campaign surrounding Seven Families is having an impact.”
These figures sound impressive, yet with all the positive media coverage from initiatives such as 7Familes which is helping to raise awareness of income protection a third of people in the UK – equivalent of 8.5 million households – only have £250 or less set aside as a financial safety net, new research from HSBC shows.
Given that the average Brit has monthly essential outgoings of £954 and monthly debt payments of £514, these households could soon run into financial trouble. The survey of over 2,000 people found that almost a quarter (24%) of all UK households have no savings at all, while 9% have savings of £250 or less. Based on UK households’ average outgoings, this would last just four days if they were to unexpectedly lose their income.
18-24 year olds are the group most at risk: 33% have no savings at all, while a further 10% have savings of under £250. Again based on their average outgoings, this age group would survive just three days on £250. Worryingly, despite being likely to have more financial responsibilities, almost a third (31%) of 35-44 year olds also have no savings with 12% having less than £250. When you consider a third of households would not be able to pay their mortgages if they lost their jobs.
With almost half of UK households (44%) having savings pots of £2,000 or less, with 36% of the population saying they would depend on their savings if they were suddenly made redundant or were unable to work due to illness. If made redundant, almost a third (30%) said they would not be able to pay their mortgage. A quarter (26%) would be forced to apply for benefits, while nearly one in ten (9%) would turn to unsecured lending such as credit cards, store cards or a personal loan to finance their monthly outgoings and 8% would rely on their overdraft.
|How UK households would cover their monthly outgoings if they lost their income||2015||2013|
|Use their savings||36%||36%|
|Apply for benefits||26%||29%|
|Use credit card / personal loan / overdraft||17%||17%|
|Ask family or friends to cover them||12%||13%|
|Use insurance that covers them for unemployment or a long-term illness||9%||12%|
More than one in ten (12%) would rely on their partner, friends or family to cover the cost of their bills or mortgage, while 10% would borrow the money from family outright. Only 9% would be covered by insurance in the event of unemployment or a long-term illness that prevented them from working, down by three per cent since 2013.
Debbie Thomas, Head of Savings, HSBC said: “Our research paints a worrying picture of the UK’s savings, but the good news is that it’s easy to start a regular savings habit. If you put aside £50 each month, you’ll have saved £500 by Christmas plus the interest you’ve earned. That works out at just under £12.20 per week – whether you cut back on coffees, cocktails or get thrifty with vouchers and coupons, small changes genuinely do make a big difference over time.
“As 91% of the population does not have their income protected by an insurance product, making sure you have a sufficient financial safety net is crucial. This cuts the risk of running into financial trouble should you lose your job or be unable to work, and means you don’t have to resort to methods that could leave you in debt. As a general rule, a minimum of three months’ salary makes for a solid financial backup.”
It is staggering that only eight per cent of of the population has protection insurance in place to protect themselves against redundancy, accident or sickness. As policies improve, along with payout statistics with premiums more affordable than ever it has to be concerning to the industry as to what they have to do to increase sales.
Households can pay up to £100 per month for pay-per-view TV, or £242 a month for a 20 a day smoking habit but try to get consumers to part with £50 to £100 per month for protection insurance! I currently have life, critical illness and private medical insurance which costs me just under £100 per month. I’d prefer to forgo a few non-essential luxuries to be protected, but it seems that consumers don’t see the long term benefits.
I appreciate there are a lot of misconceptions about protection payouts and products, but living off savings or state handouts will only have a catastrophic affect on family incomes. There needs to be a dramatic change in direction for consumers to take steps to protect themselves rather than rely on an every decreasing state benefit system.