Protection Report. protecting your home

Transcription

1 Protection Report protecting your home May 2014

2 A home is rarely

3 justfour walls It represents the way we engage with almost every element of family, community, business and, indeed, life in general.

4 The areas and specific properties homeowners select are carefully chosen for a number of very valuable reasons, from school catchments, family environments and quality of the surrounding area to the proximity of work. But that means the stakes are high. Protecting a home, and our place in it, is clearly about protecting a way of life in the present and everything we ve done over time to get to this point. Not only that, but changes in the way we live, such as increasing numbers of home-based business owners, mean that without adequate protection in place, the impact of losing a home could be even greater than we initially realise. Mortgage holders, more than any other group, are aware of all this, not least because this group has the highest rates of financial protection by far. Of the protection policies held by the British public, the vast majority are owned by mortgage holders, including 75% of critical illness cover and 69% of income protection policies. Of the protection policies held by the British public, the vast majority are owned by mortgage holders, including 75% of critical illness cover and 69% of income protection policies. 4

5 The protection need Mortgage holders may be the most engaged, but with the extensive protection gap faced by the nation as a whole, the truth is that life insurance is only held by half of mortgage holders, critical illness by under 1 in 5 and income protection by under 1 in 10. Perhaps the improvement in the housing market is helping make homeowners more confident in their overall circumstances (and therefore less likely to engage with protection) as the level of equity in their property increases. And they feel there are other reasons to be cheerful too. Mortgage holders have more confidence in the security of their job, for example, than any other group, and their debt is falling. Which of the following financial protection products do you own? Life insurance Critical illness insurance Income protection insurance Mortgaged SOLD 50% 17% 7% Housing association 32% 3% 2% Own outright 28% 3% 2% Local authority 27% 2% 0% Private landlord TO LET 15% 5% 3% Total 33% 8% 4% 5

6 Working towards a better future In the last few years tough economic climate, the UK population has worked hard to reduce their unsecured borrowing. Last year s report revealed that those with mortgages had carried over an average of 8,200 in non-mortgage debt in the previous three months. By 2014, mortgage holders have made determined efforts to reduce their debt and that figure has fallen dramatically to just under 6,400. But that s still 800 more than the nation s average. One third of mortgage holders reported saving more in the last year, the rest either saving less or not saving at all. With monthly household expenditure increasing by 75 in the last 12 months, it s clear having no available cash is a major barrier to saving for all people, including mortgage holders. It s little wonder then, that far more mortgage holders than any other group consistently said they had no idea how they would cover their household bills if they or their partner were unable to work due to incapacity, serious illness, an accident or death. Over the last 3 months, approximately how much non mortgage debt (e.g. credit cards, loans) have you (and your partner, if applicable) carried over each month in total? Mortgaged SOLD 6,400 8,200 Local authority 2,700 4,800 Private landlord TO LET 5,100 8,300 Total 7,000 5,

7 With so many reporting affordability issues in the current economic climate, there is a risk of further difficulties if the historically low Bank of England base interest rate of 0.5% begins to rise. If they do get into difficulties, mortgage holders are also at risk of over-estimating the support they would receive from other sources, including their employer and the state. While 58% of people believe their employer will pay them either a full salary or a full salary followed by a partial salary if they are off work for a long term, this percentage rises to 64% among mortgage holders. 58% of people believe their employer will pay them either a full salary or a full salary followed by a partial salary if they are off work for a long term, this percentage rises to 64% among mortgage holders. If you had to reduce your outgoings, what would you cut back on? Protecting a way of life 51% Cinema/Theatre/Concerts. 58% Nights out. 66% Eating out. It s clear that those paying off a mortgage take their finances seriously and are more engaged than others with various ways of protecting their way of life in the current climate. However, with this engagement dropping just as affordability may become more of an issue should interest rates rise, mortgage holders should be encouraged to review and develop a more robust protection plan to ensure they are protected should the unforeseen happen. More importantly, that plan must also give the policyholder peace of mind that they and their families will be able to keep their home and protect their way of life even if their personal circumstances change in the future. 7

8 life feels better when you have a plan /14 Scottish Widows plc. Registered in Scotland No Registered Office in the United Kingdom at 69 Morrison Street, Edinburgh EH3 8YF. Telephone: Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number