Life - Articles - The squeezed middle fall into the protection gap

43% of people have enough life cover to protect their family. This falls to just 26% of couples with children. In our 20s and 30s, we’re most likely to fall short on life cover – with just 30% of those aged 30-34 having enough and 35% of those aged 35-39 having enough.

 People with a mortgage will need more cover, but are more likely not to have enough life cover: 35% have enough.

 Middle earners don’t have enough cover either. Adequacy of cover tends to rise with income, but only 39% of middle earners have enough.

 Figures from the HL Savings & Resilience Barometer, January 2024

 Sarah Coles, head of personal finance, Hargreaves Lansdown: “The squeezed middle, in their 30s and 40s, carry a huge weight of responsibility. They’re more likely to have a young family relying on them. They’re also more likely to own a home with a big mortgage, that would need to be paid if something was to happen to them. It means they need the biggest and most robust safety nets, so it’s particularly alarming that so many of them fall into the protection gap.

 The HL Savings & Resilience Barometer builds a picture of short-term resilience. It looks at emergency savings, but also at the insurance cover and workplace protections people have in place. It considers their total assets and life insurance, and then subtracts their debts and the cost of looking after their children to the age of 18 – to assess whether they have enough life cover. It also looks at how long any sick pay or income protection would last if they were ill, and whether they have redundancy cover or critical illness insurance.

 Only around a third of people in their 30s have enough life cover, and while that rises to 43% of those in their early 40s, and 47% of those in their late 40s, it still leaves sizeable gaps. The shortfalls are even more worrying among couples with children – only 26% of whom have enough life cover.

 Often people will consider that insurance needs to cover their mortgage, but they may not think about any children, and covering the cost of bringing them up. The big shortfall among those who have a mortgage – with only around a third having enough – may owe less to people forgetting to get insurance to pay off their mortgage if they pass away than to the fact that this may be all that they’ve covered, so they haven’t considered support for their children.

 The squeezed middle actually fares better when it comes to critical illness cover, with almost two in five of those from their mid-30s to their mid-40s buying some form of cover. Couples with children have strong scores for everything but life cover, with an impressive 52% holding critical illness insurance, and scoring above average for redundancy cover, sick pay and income protection. But while all of these are real positives, and can make a major difference at key moments in life, it’s essential it doesn’t come at the cost of life cover.

 Where people have chosen to work for themselves in order to build a working life around their family, they may be particularly exposed, because self-employed people have significant gaps in cover. Only 13% have enough redundancy cover, and 33% have enough sick pay and income protection – which for employees will usually be covered by their employer. However, they score strongly for life cover (46%) and critical illness cover (32%).

 It's a salient reminder that we need to look at our resilience in the round, and not neglect any corner of our finances. We need to consider exactly what help our family would need if something was to happen to us, and ensure we have the savings and insurance in place to cover it. If it’s too onerous a financial burden to pay for it all, we need to prioritise, but it’s absolutely essential not to overlook life insurance in the overall picture. If the worst came to the worst, your family would be lost without you in so many ways, but insurance ensures that their finances would survive.”

 Mark Hicks, head of Active Savings, Hargreaves Lansdown: “People going through the expensive years of mid-life may struggle with protection, but they do well when it comes to emergency savings. Between their mid-30s and mid-50s, around two thirds of people have at least three months’ worth of essential expenses in savings. It actually peaks in our mid-50s at 69%. Because there are so many people relying on us at this stage in life, it means we need to put more away to cover emergencies, which is why on average we save more than 5% of our income between the ages of 30 and 54.

 For those carrying larger balances in easy access accounts for emergencies, it’s even more important they’re working as hard as possible for you. At the moment, you can make more than 5% in cash savings. Providers are competing hard for cash ISA season, so the most competitive easy access cash ISAs have pushed over 5% too. It means you can make a decent return, without worrying whether you’ll need to pay tax on your savings income. Whether you opt for a cash ISA or a savings account, it’s worth tracking down a better deal – and considering online banks and savings platforms, which tend to offer much better rates than the high street.”

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