Protection insurance is a viable way of cutting the government's cost of welfare, the Association of British Insurers (ABI) has said.
Helen White, head of protection at the ABI, said in a blog that reductions in the cost of welfare will not come from further cuts, but from lessening the reliance on the state.
She noted that, according to the Institute for Fiscal Studies, benefits for the sick and disabled make up 5% of total government expenditure and according to the Treasury, 20% of welfare spending.
"The government is left with a dilemma: how can they make meaningful welfare cuts without hitting pensions and the most vulnerable in society?" she said.
She added that research for the ABI by the Centre for Economic and Social Exclusion (CESI) shows that 10.8 million households - more than 60% of working families - would need more than the state currently provides if critical illness or disability struck down the main breadwinner.
She said: "If these households had better safety nets, through private insurance, rather than relying on inadequate state support, they could ensure that money was not a primary concern at a time when sickness or disability has forced them to unexpectedly leave work."
Currently the state saves £120m a year from the 11% of working families who have taken out private insurance.
If the 60% of households who would not get adequate support from the state all had the same, the Treasury would save a total of over £660m.
"It is time that we had an honest debate about what we would all actually be entitled to from the State. Only then can we talk about realistically reducing welfare spending whilst protecting those that really need it," she said.
