New research by SunLife suggests the ‘protection gap’ is caused by under-insurance as much as it is by not having any insurance.
According to SunLife, 29% of people take out life insurance when they take out a mortgage, while 23% take out cover after the birth of a child.
However, the average life insurance payout in the UK currently stands at £51,500, which would only cover 62% of the average outstanding mortgage (£83,000) in the UK.
For people taking out new mortgages, the gap is even greater – £51,500 would cover 31% of the average new mortgage of £167,000.
Dean Lamble, managing director at SunLife, said: “Although the UK average life insurance payout is just £51,500, for our Family Life Insurance term product, the average cover that new customers are taking out is £116,692, which is 40% more than the typical outstanding mortgage.
“Yet that in itself is very revealing – people are treating life insurance like a type of mortgage protection. Of course, if for example the breadwinner in a family was to die, being able to pay off the mortgage would be a big help. But, while that would take a significant burden off the family, it wouldn’t leave any money to pay the ongoing household bills, provide an income or mean the everyday things could carry on.”