When selling protection, IFAs may have to ditch hard facts and be more aware of the clients' needs - especially over their savings, says Louise Colley
Against the backdrop of continuing financial uncertainty, consumers' basic need for protection insurance is more important than ever. But a report looking at the finances and concerns of families has found a wide disparity between their understanding of the need for protection and the reality of what steps they have taken to address it.
Aviva's Family Finances Report found that 84% of the UK population is classed as living as part of a "modern family". It also revealed that a staggering 93% do not feel they have adequate financial protection.
When asked which specific protection products they currently hold, on average 61% of families confessed they do not have even basic life insurance, with 87% saying they are without critical illness cover, and 89% saying they do not have income protection.
The implications of this protection gap on the welfare of families are significant. The report found while the average percentage of families with an income of less than £750 per month is 9%, this rises to 34% for single parents raising one or more children and 31% for divorced, separated or widowed families.
With the report also finding that UK families rely on salaries for 75% of their monthly income, it serves to further highlight how vulnerable many families are to external financial shocks such as redundancy, illness or death - especially as 33% of families report they have no savings and 40% say they save nothing each month.
When it comes to savings, the mean amount for UK families is £15,766. But this is skewed by some outlying figures. A more representative figure is the median, which is just £849. As a result, in the event that monthly income suddenly stops, savings could quickly evaporate after less than one month after spending on the essentials of subsistence and housing having been taken care of.
But before addressing how advisers can overcome this reluctance for protection, we need to look why this protection gap is so pronounced. One of the most worrying aspects highlighted by the report was that 42% of families profess to have already been seriously affected by illness, yet they still do not have any protection insurance in place.
Of those families who have been affected by illness, 25% testify they have already experienced what it is like when one of the main breadwinners is unable to work due to ill health. A further 15% have seen a family member unable to work due to stress, depression or mental health issues, and 7% say they've witnessed a family member give up work to look after another family member.
Wealth over health
Despite this first-hand experience of illness, families will prioritise paying off unsecured debts and setting up savings accounts ahead of financially protecting their homes and loved ones. Giving reasons as to why they do not have protection insurance, 19% of families say they thought it was too expensive and cannot afford it, while 5% believe it never pays out and therefore isn't worth buying.
To push the issue of affordability further, the report also asked families which areas of their finances they would address if they received an additional £50 per month due to a salary increase. As much as 41% said they would save it, 27% would use it to pay off debts and 12% would use it to treat their families.
