Less than half of UK households have enough protection, even those with children

Do you have children, a mortgage, or someone who is financially dependent on you? If so, it’s likely that the right protection will give the peace of mind that financial support will be available if the worst happens.

Despite this, new research published by Mortgage Strategy has revealed that just 44% of households have enough life cover to protect their family, reducing to 35% of households with a mortgage.

Without the right protection you could leave your loved ones with large debts or insufficient money for them to maintain their standard of living.

Read on to find out more about the UK “protection gap”, why younger people are less likely to have protection, and how to give yourself peace of mind.

UK households have a significant “protection gap”

The survey looked at the emergency savings, insurance cover, and workplace protections people had in place.   

It considered a household’s total assets and life insurance, and then subtracted these debts and the cost of looking after their children to the age of 18. This formed an assessment as to whether homes have enough life cover.   

The study also looked at how long any sick pay or income protection would last if a respondent was ill, and whether they had redundancy cover or Critical Illness insurance.   

Sarah Coles from Hargreaves Lansdown, who commissioned the research, said: “Often people know that insurance needs to cover their mortgage, but they may not think about any children, and covering the cost of bringing them up.   

“The big shortfall among those who have a mortgage – with only around a third having enough – may owe less to people forgetting to get insurance to pay off their mortgage if they pass away than to the fact that this may be all that they’ve covered, so they haven’t considered support for their children.”  

Younger people likely to have a bigger “protection gap”

Perhaps worryingly, the study revealed that people in their 20s and 30s are most likely to fall short on life cover.

Mortgage Strategy reports that just 30% of those aged 30 to 34 had enough life insurance, rising slightly to 34% of those aged 35 to 39. 

The report calls the 30 to 40 age group the “squeezed middle” who “carry an enormous weight of responsibility”, of paying for a home and raising children. The survey says just 1 in 4 (26%) couples with children have adequate cover.  

Sarah Coles added that this group are “more likely to have a young family relying on them to keep the wolf from the door. They’re also more likely to own a home with a sizeable mortgage, which needs to be paid if something was to happen to them.   

“It means they need the biggest and most robust safety nets, so it’s particularly alarming that so many of them fall into the protection gap.”  

Younger people “not hitting the typical life events” that would prompt them to protect themselves

One reason that many younger people may not have the right level of protection is that they are not hitting the typical life events that would prompt them to take out cover.

At the end of 2022, COVER reports that insurer Vitality asked under-35s how the cost of living crisis was affecting them. Of the respondents, 3 in 10 said the crisis has already stopped them from getting on the property ladder, while a further 20% said it will stop them buying a property. 

Buying a home is often a significant prompt for younger people to take out protection including life insurance, Critical Illness cover, and income protection. It follows that if fewer young people are buying a property, they have perhaps not had to give this issue any thought.

The Vitality research also found that, of those who already had life insurance, 1 in 5 (19%) took it out when they purchased a property with a mortgage.

The second catalyst for younger people taking out financial protection is when they start a family. This is often a key prompt for people thinking about how their loved ones would manage if the unexpected happens.

However, Vitality found that 3 in 10 (28%) under-35s said the cost of living crisis will stop them from starting a family.

Andy Philo from Vitality, said: "It's more important than ever […] to ensure people continue to take out protection to support them, their families and what matters most to them.”

If you’re self-employed, you may be even more vulnerable

While many younger people are under-protected, many of them may have some workplace benefits that they or their family could rely on if the unexpected happens.

Many larger employers offer life insurance in the form of “death in service” benefit, and sick pay that is above the statutory minimum.

However, if you work for yourself, you are unlikely to have any of these benefits to fall back on. It means there is even more onus on you to put the right protection in place.

The Hargreaves Lansdown research suggests this is the case. Self-employed score higher than employed people for life cover, at 46%, and Critical Illness cover, at 38%.

Sarah Coles from Hargreaves Lansdown added: “Where people have chosen to work for themselves in order to build a working life around their family, they may be particularly exposed, because self-employed people have significant gaps in cover.   

“Only 12% have enough redundancy cover, and 43% have enough sick pay and income protection – which for employees will usually be covered by their employer. It’s a salient reminder that we need to look at our resilience in the round, and not neglect any corner of our finances.”

We can help you to find the right cover

The right protection gives you the reassurance that you and those closest to you will receive valuable financial support if the unexpected happens.

So, if you have a mortgage or children, or you’d like your spouse or partner to be able to maintain their lifestyle if you were no longer around, now’s the time to act.

One of the advantages of putting protection in place when you’re younger is that it is typically much cheaper than taking it out when you’re older. Unbiased say that average costs for level term life insurance can start from £5.83 at age 30, rising to £30.20 at age 50.

So, for the cost of a couple of cappuccinos a month, you can ensure that there would be much-needed financial support available to your loved ones if you were to die unexpectedly. They could use these funds to repay your mortgage, replace your income, or to pay for expenses such as your funeral.

As life insurance experts, we can help you to get the best price for your cover. We work with many of the UK’s leading insurers – the likes of Aviva, Legal & General, Vitality, and Scottish Widows – and we’ll scour the market on your behalf to compare prices.

It takes just a couple of minutes to get a life insurance quote online, and then we can also help you through the application process. We can even help you to place your policy in trust if you want to.

Find out more about cost-effective life insurance and compare the cost of life insurance online now.