Majority of families left unprotected and at risk of financial hardship
New research from Scottish Widows shows that nearly three quarters (74 percent) of people are putting their families' financial security at risk, by failing to protect their future through life insurance, critical illness or income protection.
The fourth Scottish Widows Protection Report, based on research amongst more than 5,000 UK adults, shows a marked annual decline in the number of people taking out life insurance (38 percent, down 6 percentage points from 2011), income protection (five percent, down two percentage points) and critical illness cover (11 percent, down one percentage point), leaving themselves and their families vulnerable should the unexpected happen and their circumstances change.
Against this backdrop of decreased protection, the report indicates that families are even more vulnerable to change in their economic circumstances in 2012.
Over half of respondents (52 percent) now rely on just one income, echoing recent concerns from the Institute of Fiscal Studies, who stated average UK household incomes have dropped by 6.4% in real terms over the last two years.
More people are saving (up 5 percentage points from 2011) and nearly 40 percent of people are paying attention to paying off their household debts. However, even though the number of people saving has increased, respondents have little confidence that their savings will cover them in the event of a change of circumstances, with 60 percent believing they would only survive financially for a short period of up to six months.
Almost one in three households (28 percent), report that they would have used up their savings within a month if they lost their income, a fifth of people would struggle to pay their mortgage and a third would find it difficult to cover their household bills within a year of losing their income.
In the event of losing a partner, 29 percent of people say they would need to rely on their savings to cope financially, with 16 percent saying they would turn to state benefits, even as worries over spending cuts prevail. 14 percent admit that they just don't know how they would cope should something happen to their partner.
Richard Jones, Director of Protection and Annuities at Scottish Widows said: ""While it is encouraging to see a gradual improvement in people's attitudes towards saving, the worry is that people are not protecting themselves in the event of unforeseen events. Many do not have the provisions in place to support their families for any substantial period and even after just a month could be left with no buffer. It is at times like this that families need to do all they can to protect themselves in the event the unexpected happens. "
Essentials vs. luxury
The findings demonstrate that more people consider tangible items like having broadband (74 percent), a car (75 percent), a phone (57 percent) and home ownership (57 percent) as essential compared with protecting their family against critical illness (29 percent) and loss of income (23 percent).
More than a third of people view protecting their family in the event of illness a luxury and almost four in ten see protecting their income in the same light. A night out once a week (70 percent), shopping trips (74 percent), gym memberships (60 percent) and family outings (50 percent) are considered luxuries by many.
The report finds that buying a home remains the primary trigger for taking out protection cover. This was given as the main reason for one in three critical illness and 27 percent income protection policies.
The biggest barrier to protection, especially when it comes to critical illness cover, is cost. Of those without a policy, 22 percent say that they cannot afford cover, and 15 percent consider it to be a waste of money.
Richard Jones added: "We can see from the findings that for many, protecting their family is considered a luxury. We often find that people wait for a trigger, like buying a home, to get protected and instead will spend any disposable income left at the end of the month on more tangible items you can see and use immediately. However, we would firmly advise families put some shock absorbers in place to deal with the unexpected and avoid any hardship which could be caused as a result."