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Protection priorities

The insurance industry has been accused of scaring people into buying protection.

Of course, this is not the right tactic but you can understand why passions sometimes run high.

Right now, with consumer debt growing, house repossessions on the increase and first time buyers over-stretching themselves, you could argue that people need protection more than ever.

We never know what the future holds health-wise so there is generally always a need to have the right insurance in place. Life cover, critical-illness insurance and income protection should be priorities. They are certainly not something that advisers should feel reluctant to sell as people need protection.

But our industry has a great deal of work to do to get this message across and education is the way forward.

Research we carried out at the end of last year shows only 42 per cent of people taking out a mortgage in the past 12 months took out life insurance to cover it. Under 30 per cent took out critical-illness cover and almost 20 per cent had no insurance in place at all, as they did not see a need it, or said they could not afford it.

Further research this year shows cost is considered the main barrier. Yet, even though the cost of life insurance is probably at its lowest ever, sales have not increased.

If you were to ask a man in the street how much he thought £100,000 of life cover might cost, I doubt that he would know where to start.

It is perceptions rather than actual cost that is the barrier. People do not value protection insurance enough, they do not know enough about it and they do not know that it should be a priority without the help of our industry.

Research we carried out last summer shows a massive 78 per cent have taken out insurance on their home contents, much higher than the 53 per cent who have taken out life insurance.

This is despite the fact that the vast majority of people questioned know that life insurance is more important. Over 60 per cent have travel insurance, compared with just 23 per cent who insure their mortgage payments and only 14 per cent who have critical-illness cover.

Given our consumer culture, perhaps we should not be surprised that people are much more likely to have their TVs, DVDs and their holidays insured than their lives or mortgage payments but we should be depressed about it.

The worry is what do those who do not have cover in place think they are going to do if their main breadwinner dies or suffers a critical illness and their income is interrupted?

Well, a massive 40 per cent say they would rely on state benefits to help pay their mortgage and 12 per cent say they would sell their home in order to keep up with the bills.

Of those who have recently bought a property, many plan to rely on their partners (15 per cent), their parents (11 per cent), their savings (8 per cent) or the state (8 per cent).

Surprisingly, only 6 per cent of them reckon they simply would not be able to pay their mortgage and may lose their home.

New homeowners also ranked savings as their highest priority but this focus is questionable.

If you have just used up all your savings to buy a property, the gut reaction is to try to replenish your savings again. You want to have a buffer. You may even feel it makes more sense to save the amount you would pay in insurance premiums and create your own insurance fund.

But think about how long it would take people to get a realistic buffer in place and what would happen in the meantime. Almost 60 per cent of the new homeowners we surveyed reported they were able to save less than £100 a month. How long would it take them to build up any financial security of even mortgage payments for a month or two? Chances are that if things go wrong, they would need an awful lot more.

It makes much more sense to take out protection immediately and have a much bigger buffer in place right away in case they fall ill and cannot work or the main breadwinner dies.

What is the issue we need to tackle here? Why are Brits underinsured? Most point to the fact that people cannot afford it, but we already know that using price to tackle the protection gap seems to have done nothing to encourage more people to take out protection so price really is not the issue.

Just under a fifth of people point to Brits being underinsured simply because they do not know they are – they have not thought about or do not understand the risks they face.

Only 8 per cent say it is because people are willing to take the risk of not having insurance or because they do not trust insurance companies (5 per cent). Under 10 per cent believe it is because of other barriers – either people do not understand the products, they do not like having to think about their finances or are relying on their friends and family to bail them out.

But one thing is clear – many people seem to have lost sight of their real priorities. Everyone has different needs and we need to understand their desires and what motivates them before we can help.

All this points towards the need for consumers to seek advice when it comes to cover, to help them under-stand their priorities, the options they have and to value protection correctly.

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