The Growing Life Assurance Protection Gap

Life assurance industry experts always bang on about the ‘Protection Gap’. This is the difference between the levels of life assurance cover that we have taken out against the amount of cover that the industry believes we need. However, if the latest figure that has been produced by the UK life insurance experts is correct then, as a country we are massively underinsured as the gap stands at a whopping ?2.5 trillion, and is growing every year.

We are mainly very good at ensuring that we have the mortgage covered by life insurance should the very worst happen, but it appears that we have totally forgotten all the other costs such as other debts, supporting children and even the mundane, such as living expenses. Of course, those with no dependents have no need of life assurance, but those who do should consider it very carefully.

Unlike most things today, the price of life insurance premiums has actually fallen. In fact, if you compare life insurance premiums to costs ten years ago, they are actually 50% cheaper, meaning that if price was a barrier for most people a few years ago then that situation has changed.

At this point, you may be jumping up and down saying that you are actually ten years older than you were and therefore even though premiums have dropped, because of your age it will still be more expensive. That is a common misconception. Because people are now living longer they pose less of a risk to life assurance companies, and that has helped drive premiums down. Plus, there is more competition meaning that those pressures also force down prices.

Re-visiting the level of your life assurance may also allow you to investigate additional benefit options such as critical life illness cover. Prices will also vary depending upon whether you opt for level term or decreasing term assurance. Level term, as its name suggests offers the same benefits in the case of death over a fixed period, whereas decreasing term reduces the benefits over the period, usually in tandem with your mortgage. As that is repaid, then the amount you would require in cover also reduces.

Recent research produced by the Daily Telegraph highlighted that almost one in three adults in the UK were found to have no life assurance at all. Even though statistically the vast majority thankfully will not require it, if the worst should happen then think of the financial impact on those left behind. Are you happy to live with your own Life Assurance Protection Gap?