Families in the UK are facing major life insurance shortfalls, with only 43% of people having enough cover in place to protect their dependents, according to the latest HL Savings & Resilience Barometer.
The report highlights that those in the ‘squeezed middle’ – typically in their 30s and 40s, with mortgages and young children – are the most likely to fall into the protection gap.
Among homeowners with mortgages, just 36% have sufficient life cover. The picture is worse for families: only 30% of couples with children and just 10% of single parents have enough life insurance to safeguard their families’ financial futures.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The weight of the world lies on the shoulders of the ‘squeezed middle’. When they’re in their 30s and 40s, lots of people carry a huge weight of responsibility. They’re more likely to have a young family relying on them. They’re also more likely to own a home with a big mortgage, that would need to be paid if something was to happen to them. It means they need the biggest and most robust safety nets, so it’s worrying that so many fall into the protection gap.”
Coles noted that while many families understand the need to cover mortgage liabilities, they may overlook the cost of raising children, which contributes to a wider gap in protection. The Barometer calculates life insurance adequacy by comparing total assets and cover against debts and the cost of supporting children to age 18.
Emergency savings levels are more encouraging, with 67% of people in their mid-30s and 70% of those in their late 40s holding at least three months’ worth of essential spending in savings. However, just 32% of single parents and 38% of middle-income families with children meet this benchmark.
Coles said the fact that many households are sitting on excess savings could be part of the solution: “The fact people hold so much in savings offers a solution. Last year’s Barometer revealed that the average life insurance gap for households with dependents is £89,800, and for homeowners with children it’s £194,200. The average cost of closing the life insurance gap is £134 a year and for homeowners with at least one child, it costs an average of £321. Given the other assets these groups have, it might be perfectly feasible to cover their needs.
“In fact, some of them have excess savings they can simply use to buy cover. Among those who have more than enough savings – to cover over 6 months’ worth of essential spending – more than half don’t have enough cover (51%), so the solution is at their fingertips.”
She added: “It’s a useful reminder that we need to look at our resilience in the round, and not neglect any corner of our finances. We need to consider exactly what help our family would need if something was to happen to us, and ensure we have the savings and insurance in place to cover it.
“If it’s too onerous a financial burden to pay for it all, we need to prioritise, but it’s absolutely essential not to overlook life insurance in the overall picture. If the worst came to the worst, your family would be lost without you in so many ways, but insurance ensures that their finances would survive.”
