Millions of Britons are failing to plan for what will happen if their income drops if they are forced out of work by illness.
Just 46% of parents have life insurance, 22% have private health insurance or dental cover, but fewer still – 18% – have critical illness cover and income protection comes bottom of the list with 13%.
A new report by Aviva shows that more people are likely to insure their homes, mobile phones or pets rather than insure their family’s income against illness or incapacity.
The figures show 65% willing to buy protection for their home, 24% value their pets and 23% insure their mobile phones.
Yet almost half of people with young children – 43% – are concerned about developing a serious illness. It is their second biggest fear, just slightly behind the 45% who worry about the rising cost of living.
Aviva’s head of individual protection, Paul Brencher, says: “This ostrich-like approach to financial planning may suggest that the more frightening a scenario is, the less willing people are to engage with it and to plan accordingly.”
What are the causes?
The main reason for the reluctance to take out insurance is that many people don’t believe the insurance company will pay out in the event of a claim.
However, Mr Brencher points out that figures from the Association of British Insurers (ABI) show that in 2015 over 97% of all protection claims were paid out.
The most common reasons for rejection are that the condition was not covered by the policy or the customer didn’t disclose full information when taking the policy out.
Another top reason is that people think they are invincible – the worst will not happen to them.
Figures from the ABI show more than a million workers a year find themselves unable to work because of serious illness or injury.
Others rely on statutory sick pay (SSP), but that will only go so far. SSP paid by an employer is just £87.55 a week and runs out after 28 weeks.
The new Personal Independence Payment (PIP) is designed to take over after that for long term ill health or disability, but there is a wide range of payments – from £21.55 to £138.05 a week – and they are dependent on how your illness affects you, not the illness itself.
The report claims 45% of those surveyed could only survive financially for a month of the main breadwinner was forced to come out of work.
Of those who have actually had to deal with the situation, 20% say they think they may never recover financially or, if they do, they have no idea how long it will take.
Mr Brencher says: “With the pressures of modern living it’s very easy for parents to get side-tracked into only dealing with immediate challenges and problems, such as putting food on the table, and protecting material possessions.
“While these are all important, it is also essential that parents consider the long-term impact for their family if they were to fall seriously ill.
“Making small financial sacrifices now could ensure they are financially resilient for the future.”