A new study has revealed a worrying gap between people’s fears of illness and the financial preparations they actually make to deal with it.
Nearly half (43 per cent) of parents with dependent children are concerned about developing a serious illness – it’s their second greatest fear after the rising cost of daily necessities (45 per cent) – and yet three quarters (76 per cent) have no financial plan in place to deal with a loss of income due to ill health, according to the Protecting Our Families report published by Aviva.
In fact, people are more likely to buy protection for their homes (65 per cent), phones (23 per cent) and even pets (24 per cent) than they are to insure their income against illness or incapacity.
Fewer than half of parents (46 per cent) have life insurance, about one in five (22 per cent) have private health insurance or dental cover, and fewer still (18 per cent) have critical illness cover. Only 13 per cent have income protection cover.
This ostrich-like approach to financial planning may suggest that the more frightening a scenario is, the less willing people are to engage with it and to plan accordingly.
Previous research has revealed a range of reasons for not buying these kinds of insurance, the principal one being that many people believe the insurance company will not pay out in the event of a claim.
Yet figures released by the Association of British Insurers (ABI) show that increasing numbers of claims are being paid out by insurers. In 2015, over 97 per cent of all protection claims were paid.
Where a claim is declined it is usually either because it is for a condition not covered by the policy, or because the customer did not disclose important information when taking it out.
Another major reason why many people remain uncovered is because they assume the worst will not happen to them. Yet according to the ABI, one million workers a year find themselves unable to work due to a serious illness or injury.
Many also rely on statutory arrangements, but they only go so far. Statutory Sick Pay, paid by the employer, is just £87.55 per week and stops after 28 weeks.
There are state benefits too, including the Personal Independence Payment, which is intended to cover the costs of long-term ill-health or disability. But payments range from just £21.55 to £138.05 a week, and are dependent on how your condition affects you, not the condition itself.
Aviva’s figures only serve to add to the potential pain. For example, nearly half (45 per cent) of UK families could only survive financially for less than a month if the main breadwinner was unable to work due to illness or death.
And the hammer-blow: among those UK families who have actually dealt with such a loss of income, the experience left one in five (20 per cent) thinking they will never recover financially, or have no idea how long it will take.
Paul Brencher, managing director for Individual Protection at Aviva UK said: “With the pressures of modern living it’s very easy for parents to get side-tracked into only dealing with immediate challenges and problems, such as putting food on the table, and protecting material possessions.
“While these are all important, it is also essential that parents consider the long-term impact for their family if they were to fall seriously ill.
“We want to encourage parents, particularly those with dependent children, to consider how they would protect their family if the worst happened. This means considering all of their financial assets and commitments and ensuring they have put the necessary plans and protection in place, just in case they do face this situation at some point in their lives.
“Making small financial sacrifices now could ensure they are financially resilient for the future.”