In their recent Health & Protection Survey, Drewberry Insurance found that workers significantly underestimate their chance of passing away during their working life, which could provide a significant explanation as to why life insurance is so underutilised.
The sample of 2,000 workers estimated the chances of an 18 year old passing away before age 65 at 1 in 70, whereas the actual risk is closer to 1 in 9. This means that the actual chance of working age death is 7 times higher than workers perceived.
If workers underestimate the chances of death so significantly then it may not be surprising that the take-up rate for life insurance is so far below an optimal level, leading to a significant life insurance protection gap in the UK.
The survey also found that workers estimated that the leading life insurers’ only payout around 50% of all claims made, when the actual payout rate is closer to 98% of all claims made.2 Thus, the combination of a low expected payout rate and an underestimation of their mortality risk could be key explanations for the protection gap.
Chance Of Incapacity 3x Higher Than Workers Perceive
The workers surveyed were also asked to estimate the chance of being off work for over 6 months due to ill health during their working life. The sample estimated this incapacity risk at 1 in 30, when in fact the chance is closer to 1 in 10.3
This finding could also help to explain why as few as 8% of our sample hold income protection insurance, even though 54% of the sample either receives no sick pay or up to 3 months full pay and as much as 61% of the sample would not be able to survive living from savings for longer than three months.
Tom Conner, Head of Protection at Drewberry Insurance, says, “These survey findings really demonstrate that the insurance industry needs to do far more to educate workers on the real risk of death and incapacity.
“It is often argued that people consider protection to be expensive but this could down to the fact that consumers are far more likely to need to claim on these products than they realise. It is only through educating consumers on these risks that we can hope to encourage people to protect themselves sufficiently.”
