Scottish Widows UK Protection Report 2011

Scottish Widows UK Protection Report 2011

Introduction Welcome to the Scottish Widows Protection Report 2011. This is the third Scottish Widows Protection report we have produced, with previous reports being published in 2006 and 2009. At Scottish Widows, we are committed to the continuous improvement of the products and services we offer our customers. As part of this commitment we have commissioned research, in partnership with YouGov Plc, to explore the attitudes and behaviours of adults towards protection products and to try and understand: why we have the current levels of protection in the UK how people plan to cope financially if something doesn t go as planned how realistic their financial plans for the future are how aware they are about the level of support available to them, and how long this support may last. No one knows what is round the corner and planning for the unknown is something that most of us know we should do. However, our research shows that too few of us actually do. Whether it is illness, disability or a death that finds a household struggling financially, having the right protection in place can help ensure a home and lifestyle are protected. This report looks at a number of the key findings that emerged from our research. These focus on peoples attitudes towards protection, their financial priorities and how well they are prepared at present should the worst come to pass. What is clear throughout is that there is a protection mismatch across the UK between the need for protection, and the level of preparedness evident. The Protection Mismatch Our research shows that although we in the UK are aware of what protection is available to us very few are actually covered. In fact more of us have insurance to cover our pets and mobile phones than we do our health and income which are so important in meeting our many financial liabilities, such as mortgage and credit card payments, food, utilities, council tax and petrol and these are just the essentials. The vast majority of people have heard of life insurance (97%), critical illness insurance (86%) and income protection (83%). Although this is good news, the take up of these products are still very low and has in fact decreased or stayed the same since our last survey. Percentage 50 45 40 35 30 25 20 15 10 5 0 Life Insurance Critical Illness Income Protection Type of Cover Pet Insurance Mobile Phone Insurance When asked to identify items as essentials and luxuries we again see a worrying trend of material goods being rated as more important than financial security. 69% of people said their broadband was essential to their day to day living and 55% said their mobile phone was. In contrast, just 39% said ensuring their financial security if they were unable to work was an essential. Financial protection isn t tangible and perhaps this goes someway to explaining this recurring mismatch of priorities. We can see from these findings that very few people are thinking about the possibility of suffering a critical illness or being off work long term due to sickness or accident and the costs that would be incurred. 1

Attitudes Towards Protection As we saw in 2009, people are slow to recognise the risks to themselves and their families and to take steps to limit the financial impact should the unexpected happen. In fact just 26% of people felt that they would be financially secure for the long term in the event that a household income was lost, with 33% stating that they wouldn t be secure at all in this instance. Despite this realisation, not seeing a need for financial protection was one of the main reasons people gave for not taking out protection. The other reasons that people mentioned for not taking out protection were affordability and not being a financial priority. Why Do People Take Out Protection? For those who do have cover however, 24% took it out because they realised the importance of protecting their family and themselves, 22% purchased protection after buying property and 10% said their experience of the recession encouraged them to take out protection. Unsurprisingly, those with mortgages have a greater take up of protection and seem to be better versed as to the need to protect their income. This may be down to the fact that protection is offered at the time of taking out a mortgage and that they have something physical to actually protect. 25 20 All Mortgage Holders Percentage 15 10 Percentage 5 0 Can t afford life insurance Don t have any dependants Not a financial priority Don t think I need a policy like this Don t think I can afford it 80 72 64 56 48 40 32 24 16 8 0 Life Insurance Critical Illness Income Protection Pet Insurance Mobile Phone Insurance Attitudes toward protection Type of Cover Did you know? Insuring an iphone costs an average of 19p per day* compared to a 50,000 life cover policy** which costs an average of 24p a day. Just two cups of Starbucks coffee a week works out as a cost of 68p per day*** which is more expensive than a 50,000 life and critical illness cover policy costing just 49p per day****. Buying a property is obviously a major driver in taking out protection but we shouldn t be dismissive of the need to also protect rent. After all, we all need to live somewhere and with it becoming increasingly hard to get on the property ladder, there is an increase in people renting. What would happen if someone was unable to work due to long term illness how could they pay their rent? More of us are likely to protect our mobile phones or our pets than ourselves, but what financial value would families attribute to the loss of their main breadwinner? Sources: * www.protectyourbubble.com April 2011 (based on model 32CG iphone 4). ** Based on Decreasing Life Cover over a 10 year term (female, aged 35, non-smoker) Scottish Widows Protection for Life Plan April 2011. *** Starbucks April 2011 (based on two cups of grande latte or cappuccino per week). **** Based on Life and Critical Illness Cover over a 10 year term (female, aged 35, non-smoker) Scottish Widows Protection for Life Plan April 2011. 2

Financial Priorities In light of the turbulent economic times we are experiencing, when we asked people what their main financial priorities were, there was a clear focus on the here and now. Over the next 12 months the main priorities are to pay household bills (56%), make ends meet (37%), to maintain their current lifestyle (34%) and to take care of their family (30%). While people say taking care of their family is a key priority more people pay attention to reviewing the finances for electrical appliances than they do their health or their children s health. Maybe people don t see financial protection as a way of taking care of their family, again because it isn t tangible. We would argue that there is no better way to take care of loved ones than ensuring their home and lifestyle could continue as normal in the event of a loss of income due to death or illness. What is interesting is that none of these priorities are aspirational, they all relate to getting by and maintaining the status quo. When meeting day to day costs are a priority for so many people, it s clear that should the income that usually meets these costs be lost, many families and households would be looking for another way to survive. Percentage 60 50 40 30 20 10 0 Paying the monthly mortgage payments Paying household bills Taking care of my family Priority Coping with debts Making ends meet Maintaining my current lifestyle Reliance on Two Incomes The financial priorities mentioned and the importance placed on meeting day to day costs are particularly worrying when you consider the reliance that households have on two incomes. 44% of households are reliant on two salaries which rises to almost half of households with children (49%). Mortgage holders have an even greater reliance on two incomes with 51% of households reliant on two incomes. This effectively means that people are doubling their risk if something happens to either earner without adequate protection in place, the family could struggle to survive financially. Unrealistic Coping Strategies So if the worst were to happen, how would people survive financially? 44% said they d make cut backs on their general expenditure and 43% said they d use their savings. However, cutting back on general expenditure will only get them so far. So many of the essentials in life, like mortage and credit card payments, utilities, insurance policies, and council tax make up the majority of general expenditure and these costs do not go away. The second point too seems rather unrealistic, given the fact that 58% of people surveyed said they had either under 2,500 in savings, didn t have any at all or didn t know how much they had. Even if they had 2,500, this wouldn t last long given the average weekly household spend is 455*. 23% said they d rely on the State should they find themselves in this position despite 35% of people not knowing how much they would be eligible for. People may have second thoughts about this coping strategy when they realise Employment and Support Allowance (ESA) only pays out a maximum of 65.45** per week. The coping strategies that people have in place do not appear to be fully thought through and may be hugely inadequate for an individual s or family s needs. It is possibly another example of people thinking the unthinkable won t happen to them meaning proper provision isn t put in place. * Family Spending Survey 2010, Office for National Statistics. ** Based on a single person aged 25 and over. Source: www.direct.gov.uk/en/disabledpeople/ FinancialSupport/esa/DG_171896 3

Public Sector Vs Private Sector Given 20%* of the nation s workforce work in the public sector, it makes sense to make mention of some significant differences in attitudes to those in the private sector: Only 70% of public sector workers feel their jobs are secure for the next 12 months in comparison to 78% of the private sector workforce. 43% of public sector workers state that staying in their current job is a priority compared to 27% of private sector workers. 55% of households with people working in the Public Sector rely on two incomes compared to 44% of all respondents. What we can see here is a workforce unsure about their future in their current job and yet more heavily reliant on two incomes. Despite the difficult personal situation those working in the public sector find themselves in, the reality is that death or long term illness can strike at any time and those who are so heavily reliant on two incomes should ensure they are adequately protected should the worst happen. * Source: Office for National Statistics. Conclusion The Scottish Widows Protection Report has identified a few key areas regarding the nation s attitude to financial protection. We know that people are aware of financial protection however, this awareness hasn t translated into people taking out policies. The concerns people had in 2009 as to why they didn t take out protection still remain in 2011, which begs the question have we as an industry done enough to raise the awareness of the need for financial protection? We have also noted: People place more importance on insuring tangible material items than they do their health or income however, both are vital if they are to continue to pay for the essentials (never mind the nice-to-haves) of their everyday lives. People know they would struggle to survive financially if they lost their income but don t have realistic and resilient coping strategies in place. Those with mortgages have a better take up of protection however are more heavily reliant on two incomes to run the household. People s priorities are to simply survive, with less focus on aspirational goals. There s a financial awareness gap due to a lack of appreciation of just how long families can survive without an income, how long they can live off their savings reserves, how low the level of State benefit really is, and the speed financial hardship can kick in. It s clear that work needs to be done to communicate the difference that financial protection can make to an individual s and family s life. But people also need to take responsibility for their own financial protection and recognise that the coping strategies they have in place are unrealistic. The issues that make protection so important are not going to disappear and with the Government austerity measures taking effect, we believe that the need for financial protection will become ever more important in the coming years ahead. So, this is a time when the industry can take the lead helping advisers and consumers understand the true nature of how critical protection is to financial survival. This will help ensure that more people have the cover they need in place to protect the lives and wellbeing of both themselves and their families. 4

Please note All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 5148 adults. Fieldwork was undertaken between the 23rd and 28th of February 2011. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+). 5

Scottish Widows plc. Registered in Scotland No. 199549. Registered Office in the United Kingdom at 69 Morrison Street, Edinburgh EH3 8YF. Telephone: 0131 655 6000. Scottish Widows plc is authorised and regulated by the Financial Services Authority. Our FSA Register number is 191517. 51790 05/11