Not enough people take out life cover to protect their mortgage, says Swiss Re survey
A shortfall in protection cover through term assurance in the UK has been identified by TermWatch, an industry survey conducted by Swiss Re Life & Health. The survey says too few people are arranging life cover to protect their mortgage obligations.
Figures from the Council of Mortgage Lenders show 2,078,000 mortgages were issued including remortgages) in 2001, while there were only 1,571,062 term sales issued. The report terms this shortfall a 'protection gap.'
Ron Wheatcroft, technical manager at Swiss Re, said: 'There is evidence that since endowments have effectively been discredited, there would appear to be a gap where those endowments have not been replaced by the number of term assurance policies, although not everybody needs life cover for a mortgage. If you are single or the property is buy to let, you might think of it as an investment needing critical illness cover.'
He is also concerned at the level of cover taken out: 'The average sum insured across the market is about £82,000, when average UK earnings are just over £23,000, it is not a big multiple at all. The Association of British Insurers has research suggesting up to 11 million households are financially excluded, so the average income of an insurance buyer is probably somewhere between £25,000 to £30,000, reducing the multiple even further. Realistically people need much more cover, particularly at a time of low interest rates if the lump sum needs to convert into income.'
TermWatch also found that the average premium has fallen. While the average amount insured increased from £74,052 in 2000, to £82,835 in 2001, the average premium fell slightly from £360 to £358. The report puts this extra buying power down to increased competition between providers.
Wheatcroft said: 'The growth of the term market in 2001 is highly encouraging. The existence of the protection gap highlights the need for consumers to be more aware of how much life cover they realistically require to meet their needs. This provides opportunities to product providers to offer cost effective solutions to their clients.'
