Families are focusing on protection, even as they cut back on non-essentials, Aviva has found.
The insurer's Aviva Family Finances Report for 2011 found that, as income fails to keep up with inflation, debts increase and monthly savings hit their lowest levels for 2011, families are not only trying to save, but are also taking out protection products.
The report said average monthly incomes rose by just £46 since January 2011 but the cost of energy bills (+18.8%), motoring (+8.7%), public transport (+8.5%) and food (+6.9%) have all soared, squeezing discretionary spending.
As a result the typical savings pot (excluding any pensions or property) is just £967, down 2% over the year, as the average family saves just £19 per month. This is the lowest monthly savings rate recorded in 2011.
However, a reviewing of families product profiles, found the number of families with life insurance has risen from 39%, in January this year, to 41% in November and critical illness cover from 13% in January to 14% in November.
Louise Colley, head of protection, Aviva, commented: ""While this latest report shows that family finances are still tight, it's reassuring to see that more people are beginning to take steps to protect their families with life insurance and critical illness cover.
"While there is still a significant protection gap across the UK, this is a step in the right direction, and we would hope that more people will follow this trend."
The report added that more than half of UK families (52%) have unsecured debts and the typical amount owed is £10,604. The typical indebted family spends £224 or 9% of their monthly income on debt repayment.
Paul Goodwin, director of workplace savings, Aviva comments: "To make ends meet, we have found that UK families are cutting out luxuries, economising on spending and reducing the typical amount they save.
"Typical UK families now save under £20 a month, but the number of non-savers remains steady - which does suggest that those in the savings habit are still actively trying to save where possible.
"We hope that we will see a return to more favourable financial conditions for UK families in 2012."