Life and health insurance is becoming a more important part of wealth management conversations as financial planners discuss the implications of protecting the family fortune, as well as propagating it.
"Insurance is sold, not bought", according to the old rule-of-thumb. Memories of the Man from the Pru, turning up at the door to collect the £2 policy payment from housewives, along with a cuppa, are still lodged in the collective consciousness of Britons.
The message that was spread from household to household - protect your families in case the worst happens - is still as important today as it was in the 1960s and 1970s.
So why has insurance been treated like the poor relation of financial planning for so long?
While millions of Britons have been automatically enrolled into a pension through the workplace to ensure a better prospect in retirement, swathes of the population remain without life or health or income protection insurance.
According to last year's data from the Financial Conduct Authority's FCA Financial Lives figures revealed:
- 29 per cent of UK adults have life insurance (often through the workplace)
- 13 per cent have critical illness
- 6 per cent have income protection.
Comparing this to just before Covid in 2020, these figures stood at 30 per cent, 13 per cent and 5 per cent respectively.
Putting this into context:
- 100 per cent of Britons will die
- 9.1mn people (adults and children) are expected to get a critical illness (13.6 per cent of the total population), according to the Health Foundation's 2024 figures
- 2.8mn UK adults are living with long-term sickness that means they are unable to work - and this is set to rise, the government has warned.
- For every 13 people working, one person is long-term sick (Office for National Statistics).
Clearly, critical illness and long-term sickness can happen to anyone across the wealth spectrum. So where, amid the clever ways to invest the income that breadwinners bring in, are the plans to protect the breadwinner and their income?
According to Dean Hughes, member of the Protection Distributors' Group and account manager for St James's Place, protection is - or should be - a "fundamental part of an adviser’s client review and one of the six mandatory areas to be covered within our advice framework".
He explains the link between insurance and income generation: "Preserving the wealth of their clients is paramount and protection is regularly positioned within their overall attitude to risk."
So why is there a protection gap? According to some advisers, this so-called 'protection gap' indicates that while there has been a great collective awareness of the potential for things to go wrong, there is an unwillingness to accept this will happen at a personal level.
Recently, there may also be more pressing needs for the household expenditure amid the cost-of-living crisis.
Difficult conversations
Joanna Streames, founder of Velvet Mortgage and Insure Services, is passionate about protection, having first-hand experience of a lack of financial support when her mother died suddenly.
Her death left the then-19 year old Streames and her 12-year-old sister to navigate the "stress and anguish" of dealing with both bereavement and financial insecurity.
But she acknowledges that many people who have not gone through such a situation find it difficult to relate to "early, unexpected events, such as death or major sicknesses, and believe they won't experience these things - or at least until much later in life".
Covid-19 helped to open up these conversations, Streames says, as more advisers started to discuss protection needs as part of holistic wealth planning advice.
