New research finds that nearly half of people between the ages of 25 and 44 are considering taking out income protection insurance to protect their monthly income as a result of the Covid pandemic.
While millions of people in the country have seen a decrease in the amount of money they take home due to a lockdown or vacation, more are becoming interested in the types of insurance that protect their income.
About 48 percent of people ages 25 to 44 said they were looking for income protection coverage, while two out of five said they were considering buying life insurance, the insurance company LV= found.
Income protection: More young people are becoming interested in the cover because they are more likely than their older peers to face the financial fallout from the shutdowns
Income protection insurance is designed to cover your salary if you are unable to earn an income due to illness or injury.
It differs from life insurance, which pays your dependents upon your death, or critical illness, which pays a lump sum if you receive a diagnosis of an illness that appears on a pre-agreed list.
Income protection has never been a bestseller – in part because it’s seen as complex, more expensive, and paid on a monthly basis rather than a one-time lump sum.
However, LV=’s survey of more than 4,000 adults conducted in December suggests that interest in covering has picked up, also among young people, who are more likely than their older peers to face the financial fallout of lockdowns.
“The pandemic, lockdowns and furloughs have caused enormous financial damage to millions of families who are worried about maintaining a steady income,” said Debbie Kennedy, Director of Protection at LV=.
The challenges of the coronavirus pandemic and additional lockdowns have forced people to reassess their priorities and spending habits to address short-term instability.
People are now more aware of the vital importance of their income and the vulnerability of their financial resources.
As more youths look to income protection coverage, nearly 20% have never heard of it, according to research from LV=
Financial concerns: About 44% of people ages 25-44 surveyed said their financial situation in the last three months of 2020 had worsened since the summer months.
These products remain a mystery to many
Research shows that about 7 percent of people ages 25 to 44 surveyed had already purchased a protection insurance product in the last three months of 2020.
About 17 percent said they were in the thick of choosing a plan, while 31 percent said they were considering it but were still doing some research.
However, these products remain a mystery to many, as one in five in this age group said they had never heard of income protection insurance, while 14 percent had never heard of life insurance.
The increased interest in income-protecting types of insurance comes as many people’s resources have been hit by the pandemic.
This is even more the case with young people, who were more likely to work in industries that had to close due to the lockdown.
At the end of last year, nearly half of Britons aged 18 to 34 said their financial conditions were worse in the last three months of 2020 than they were during the summer, which is more than 36 per cent across all age groups.
Meanwhile, about 44 percent of people ages 25 to 44 say their financial situation has worsened since the summer months, with only 12 percent saying things have improved financially.
And the outlook for the coming months isn’t much better – nearly a third, or 30 percent, of those aged 25 to 44 said they expect their finances to deteriorate in the next three months, with only 14 percent expecting an improvement.
Separate research by the Financial Conduct Authority indicated that, as of October last year, around 30 per cent of Britons expected their household income to drop within six months – rising to the 45 per cent who already have low financial resilience.
Meanwhile, a large majority of people, or about 85 percent, said they worry about their finances when thinking about the year ahead, according to another report from insurance company Prudential.
As we enter Debt Awareness Week, Moneyfacts’ Rachel Springol says: “The past 12 months have tested consumers’ financial resilience and attitude towards how they achieve 2021.
“One of the goals of Debt Awareness Week is to convince consumers to be more open-minded when it comes to money and to seek help if they are worried about their financial situation.”
Will the prices of these products go up due to covid?
When you purchase Income Protection Cover, the premiums are guaranteed or subject to review.
If it is guaranteed, it means that it will remain the same for the duration of the policy. If it is auditable, this means that it will be reviewed and changed, usually every five or 10 years.
Insurance company LV= said it was too early to say what the pandemic’s long-term impact on rates would be.
The company said: “Our life, critical illness and income protection contracts are long-term, with premiums set (and often guaranteed) up front, based on our assumptions about long-term mortality and morbidity and other associated factors.
The industry is still living and learning from the immediate and long-term effects of Covid.
People are still dying and getting infected despite the decline in numbers caused by the current lockdown measures in the UK and the launch of the vaccine.
“This is an area that we will of course monitor and review, as is everything else that this pandemic represents.”
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