The third Scottish Widows Consumer Protection Report, which details research carried out on 5,148 UK Adults, shows that many are continuing to shun protection products including life insurance, critical illness cover and income protection.
Although over half of the UK population (54%) admit to reviewing their finances once or twice a year and awareness of protection is high, the reality is that the take up of these products remains exceptionally low.
From those surveyed, 97% were aware of life insurance and the importance of having it, however only 44% had cover. Similarly, when it comes to critical illness cover the awareness remains high (86%).
However the percent of respondents who have actually taken out a product is worryingly low at just 12%. The same goes for income protection insurance where the awareness is 83%, with take up at just 7%.
The research also shows that almost a quarter of the UK population (23%) say they believe they cannot afford life insurance and when it comes to critical illness cover 26% state this as their primary barrier to not taking it out.
Luxury vs. necessity
A worrying trend is that many material goods (e.g. internet broadband) are seen as ‘essential', whereas insuring income in case of illness is seen as a ‘luxury'. 69% of respondents said their broadband was essential to their day to day living and 55% stated their mobile phone.
In contrast just 35% said ensuring their financial security if they were unable to work was essential. Just 15% of respondents said they would consider cutting back on broadband internet access, whilst a fifth said they would be prepared to cut back on critical illness and life insurance.
Clive Allison, Market Director, Protection at Scottish Widows commented:
"We realise that many people do not like to plan for the unknown, however the importance of doing so cannot be underestimated.
"Our research shows that the majority of people clearly understand the benefits associated with protection products such as life, critical illness and income protection, but that many still don't adequately protect themselves, their families and their homes.
"The industry still needs to do more to highlight these benefits to ensure take-up increases, especially in an environment where welfare provision is being eroded, and Government is promoting the need for greater self reliance."
Coping strategies should the worst happen
The research shows that when faced with the prospect of the loss of their or their partner's income, over two-fifths (44%) of respondents would make cuts on their general expenditure and 43% said they would delve into their savings.
This is a worrying statistic, given that 58% of people surveyed have less than £2,500 in savings, don't have any at all or don't know how much they have.
This would not go far if you consider that the average monthly mortgage (Interest and Capital repayment) in the UK for new borrowers currently stands at £577 a month.
Clive Allison continues:
"It is extremely worrying that so many of us haven't protected the things most dear to us - our families, our homes and our incomes which enable us to lead the lifestyles we do. Yet we feel that we cannot live without material items such as the internet or Sky TV.
"I think that the main problems are that many people don't really know how much it would cost them to take out these products and don't realise how quickly they'd fall into financial hardship if they were unable to work due to illness.
"Costs are perceived as high but customers don't really know what the cost would be for them - in reality the cost can be equivalent to a monthly Sky TV package, or a couple of Starbucks coffees a week."
