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ABI report highlights "protection gap"

A report from the Association of British Insurers finds one-quarter of the British public will not know what to do if they lose their main regular income.

Based on 2,000 face-to-face interviews the ABI found that even where people have a strategy in place to cope with loss of income, many have "unrealistic expectations" of how they will manage especially given that some over-estimate the level of benefits provided by their employer.

The report shows the most vulnerable groups are one-income families, single parent families, large families and single women aged 18 to 35.

People typically coped with unemployment by "cutting back on expenses." Most people did not know how they would cope with long-term illness or the death of the main income earner.

The picture outlined by the report is serious when set against the fact that 23 per cent of workers will be unemployed at some point in their life, with over one-third those expected to be out of work for more than one year. The additional uncertainty of a downturn in the economy couple with the after-effects of the US credit crunch has meant that many will be struggling to pay off their debts.

The ABI says that insurance can help to relieve the burden, with Life Insurance, Critical Illness, Income Protection and Payment Protection policies identified as the key financial instruments.

The report also notes the main barriers to reducing the protection gap as affordability, confidence in understanding the details of policies and the lack of independent sources of advice.

Discussing the finding of the report the ABI's Director of General Insurance and Health, Nick Starling said:

"It is important when people are taking out a loan or a mortgage that they think about how they would meet repayments should they fall ill or become unemployed. Insurance can play a role in helping people meet their financial obligations in these circumstances.

"Buying the right insurance is essential. Don’t just pick the first one you look at, or the cheapest, but shop around to make sure it’s the right policy for your needs. Most people only think about buying insurance when they buy a house, take out a loan or start a family, so looking into insurance options before you make any big purchases is a good idea."