An update on the UK's protection gap and its causes has been revealed in a report commissioned by th...
An update on the UK's protection gap and its causes has been revealed in a report commissioned by the Association of British Insurers (ABI), writes Peter Carvill.
The study, conducted for the body by NMG Financial Services Consulting, found that many households still have no strategy should a main income be lost.
Concerns were raised over perceptions of the consequences of unemployment and long term illnesses. Households expected to survive on employer payments, state benefits and payment protection insurance (PPI) policies for the first year if unemployed. Financial hardship then increases, the report said, because savings run out, employee benefits end and PPI policies stop paying.
Nick Kirwan, assistant director for protection at the ABI, said: "Worryingly, particularly on long-term illness, there is a huge perception gap and most people believe their employer would continue paying their salary for longer than they would. If you add up the amount of cover people think they have through their employers and you gross that up across the population, you find people think they have four times more cover than they actually do."
For long-term illness, the report showed households with an income protection policy in force had a 'debt and essentials gap' of £5,000 after six years for homes with mortgages, and £2,600 for households without. Without a policy, those gaps were £26,000 and £17,000.
The report noted: "Those who do have a strategy in place often have unrealistic expectations of how they will be able to manage."
The authors concluded that insurance could significantly improve the current situation for most households, noting those that did have insurance policies had been prompted to take them out.
The report was conducted face-to-face across 2,000 households along with a further 16 in-depth interviews with those thought to be in particularly vulnerable positions. 15% of interviewees had PPI.
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