Life Insurance 

Britons seriously underestimate life cover needs

Britons seriously underestimate life cover needs

Britons are underestimating how much life cover they need, potentially putting their families at risk should the worst happen.

This was among the findings from price comparison website MoneySuperMarket, which found people generally had underestimated their life insurance requirements by almost £140,000.

The study, carried out among 2,047 UK adults, asked people without life insurance cover how much they thought they would need and compared those figures to existing life insurance data.

Some 49 per cent of those surveyed estimated that £113,009 would be sufficient, but with the average UK mortgage amounting to £123,4232, this could leave people with a considerable shortfall.

Moreover, almost half of people without life insurance did not know how much cover they needed, while men believed they would need 25 per cent more life insurance cover than women, at £124,533 and £98,629 respectively. 

According to a spokesman from MoneySuperMarket, this could leave people at serious risk should the worst happen. 

He said: "Life insurance - specifically term insurance - pays out a lump sum or a regular income if you die before a certain date. It’s there to settle any debts you may have, principally your mortgage, and to provide money for your dependants.

"It’s an absolutely crucial foundation for family finances, but millions of Brits either don’t have it, or don’t have enough."

He sad as a rough rule-of-thumb, cover equal to 10 times someone's annual salary was recommended. However, he added: "Everyone’s situation is different so it’s always best to consider your own needs in detail. And it’s not just breadwinners who need cover.

"Money should be available if the person who looks after the home dies so that alternative arrangements can be made for the work they do."

OCCUPATION/INDUSTRY HOW MUCH LIFE INSURANCE PEOPLE THOUGHT THEY MIGHT NEED ACTUAL COVER AMOUNT  DIFFERENCE 
Property £35,000 £173,095 £138,095 
Childcare £15,000 £112,315 £97,315 
IT £101,852 £188,169 £86,317 
Media £135,000 £215,000 £80,000 
Education £56,304 £127,043 £70,738 

Source: MoneySuperMarket

People working in various industries had wildly different ideas about how much they might need in terms of cover, with people working in the property industry underestimating their needs by approximately £140,000 and people working in education underestimating their value by approximately £80,000. The full research can be found here

The comments came after warnings from advisers that Britons are still woefully unprepared for emergencies, with little to no life cover or income protection in the event of the death or serious illness of the breadwinner.

Tom Conner, director at Drewberry Insurance, said:

 "Many people are vulnerable to the financial shocks that include an injury or illness that prevents them from working."

However, he also pointed out the problem with life insurance was that it is often inadequate, particularly when it comes to workplace schemes.

Typical group life schemes cover between two and four times a person's salary, which he said was "obviously better than no cover at all" but he warned of an over-reliance on this type of cover.

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