ProtectionMay 18 2023

Rise in number of people borrowing to cover insurance costs

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Rise in number of people borrowing to cover insurance costs
(Pixabay/Pexels)

The number of people who rely on some form of credit to pay for their insurance has increased in the last year, with 70 per cent of UK adults now using debt to pay for their protection cover.

This was up from 66 per cent in 2022, according to research carried out by finance provider Premium Credit, which has also found the amount of debt people are using to pay for their protection cover is also growing. 

According to the research, 38 per cent of customers who use some form of credit to pay for one or more insurance policies borrowed more than they had in the previous year.

The research chimes with a report from Guardian at the end of last year, whose results of a survey of 701 financial advisers showed that 18 per cent had been contacted by clients wishing to reduce their cover. 

 Type of insurance

Percentage of adults using credit to pay insurance in 2022

Percentage of adults using credit to pay insurance in 2023

Life insurance

30%

31%

Health insurance

17%

18%

Critical illness cover

11%

13%

Premium Credit’s strategy director, Adam Morghem noted that the trend is a result of the ongoing economic strain and cost of living crisis. 

Most borrowers said they borrowed more because of increased cost of living pressures rather than because of rising premiums which only accounted for 16 per cent. 

A small proportion (6 per cent) said they used borrowing because their incomes had fallen while 3 per cent used it because they had lost their job.

Others reported relying on family and friends to help cover the cost of insurance, however the number had dropped slightly from 9 per cent and 7 per cent in 2022 to 8 per cent and 6 per cent this year. 

Speaking to FTAdviser last year, chief executive of Holloway Friendly, Stuart Tragheim said while making ends meet is the challenge for consumers, the industry now has the challenge of making sure protection is seen as essential spending

"We need to encourage them to understand the difference between price and value - and that the value of a protection policy is the guarantee of securing a client's greatest asset - themselves,” he said. 

Some in the industry have begun offering customers further supports, with Aviva recently unveiling details of its cost-of-living support scheme for existing individual protection customers. 

The scheme will operate alongside the payment deferral scheme that was put in place during Covid-19 for any customers experiencing short-term financial difficulty.

As part of it, customers will be able to buy a top-up policy to bring their cover back up to a maximum of the previous level after one or two years when their finances are back on track.

jane.matthews@ft.com