The income protection gap in both the UK and around the world is worrying and needs addressing, according to a new report from Zurich.
Produced in partnership with Smith School – University of Oxford, the Zurich report, entitled “Embracing the income protection gaps challenge: options and solutions,” sets out recommendations for tackling gaps in income and putting financial safety nets in place for people unable to work due to illness or injury. It forms part of Zurich’s larger global study, “Understanding income protection gaps: awareness, behaviour, choices.”
The report highlights how six in 10 people worldwide have savings that would barely last six months if they found themselves unable to work through illness or injury. More worrying is the fact that one in five only have enough saved to cover their expenses for just one month.
Interestingly, in some wealthy countries, such as Germany and the UK, there is a low take-up of income protection (17% and 20% respectively). However, by contrast, in Hong Kong and Malaysia, almost two-thirds of people have private protection in addition to ‘provident funds’ which they are required to pay into by the state. It’s a reality that highlights how individuals in these countries are more realistic when it comes to personal risk, and more knowledgeable about the benefits of income protection.
In fact, in general, the majority of global respondents admitted to having little or no knowledge about income protection insurance, and how it could safeguard them should they become unable to work due to illness or disability. This alone highlights that more work needs to be done to educate people about the importance of income protection and the stark reality they could face should they find themselves unable to work in the future.
Zurich says the issue of low income protection adoption levels is particularly worrying for the UK, where demand for income protection insurance and willingness to pay rank low, despite disability benefits only providing a relatively low level of cover.
It seems many Brits are under the illusion that the government would step in and help them with lost income. Furthermore, many people in the UK are underestimating their chances of experiencing income loss, with more than 40% of respondents saying their risk of income loss is lower than 10% over their working lives. However, the hard facts reveal it is more likely to be three times higher.
While the figures inevitably differ across countries and between individuals, the Zurich research shows there is a definite need to get more people to understand how income protection gaps could affect them, especially as people are working and living longer.
The findings of the Zurich report will come as no surprise to people working in the industry and the fact remains that there is a need for more education when it comes to income protection. Individuals need to assess how big their own income protection gaps are and seek advice going forward.
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