The ABI is concerned over the growing gap between the number of mortgages and mortgage extensions and the number of term life insurance policies that are taken out to cover homeloans.
Its report, The Mortgage Market – A Growing Life Insurance Gap?, says one in four mortgage holders has insufficient life insurance to cover their mortgage debt. The average life insurance gap for mortgage borrowers without sufficient cover is nearly £40,000, suggesting that the gap between total life insurance and mortgage debt stands at £113bn.
The ABI's research shows that since 1994, mortgage debt has increased by 8.4 per cent a year but the total value of life insurance cover has grown by only 4.5 per cent a year in that time.
Currently, 63 per cent of new homeloans are remortgages or further advances compared with around 34 per cent in 1994.
Research commissioned by Egg in August shows that three out of four of these borrowers make no attempt to insure their additional debt.
The ABI report says high house prices in recent years may have forced homebuyers, especially first-time buyers, to overstretch themselves and many may think life insurance is too expensive.
According to the Office of the Deputy Prime Minister, a shift to single person households to around 30 per cent by 2021 will also result in fewer life policies being taken out.
ABI chief economist and head of research James Sproule says: “Borrowers with dependants need a greater appreciation of the advantages of life insurance.”
A Wills & Co director Arnold Wills says: “This is another case for consumers to seek professional financial advice. The high street is not necessarily the place to get advice.”