The protection industry is in need of reform to help consumers understand the crucial benefits offered by family protection, Aviva has said.
The insurer has today published Rethinking Protection, a report which outlines a series of proposals to help raise awareness of protection needs and encourage UK families to plan
for the unexpected.
Figures from the insurer show that less than a quarter of families feel fully protected against unexpected financial shocks such as bereavement and serious illness, yet many under-protected people are ignoring their concerns. Only four out of ten families have life insurance in place, should the worst happen. The number of families with critical illness cover or income protection is even lower, at around 12% and 8% respectively.
Efforts to improve the protection market by publishing transparent claims data and making the claims process quicker and simpler, are gradually helping to build consumer confidence. However, Aviva believes that opportunities to remind people of their need for protection are still being missed.
Aviva is calling on the government and industry to work together to ensure that customers get the information they need at the most appropriate times, and to take advantage of changes in the financial services market to put protection at the heart of financial planning:
Aviva's plan for a better-protected Britain:
1. First-time parents should be given information about protection when they have a child: Only one in five families reviews their need for life insurance, income protection or critical illness cover when a new baby is born. Aviva believes that there should be an official process to provide parents with information about financial protection at this crucial trigger point in their lives.
2. Discussing protection should be compulsory as part of the mortgage sale process: Mortgage advisers should be required to discuss protection needs when carrying out a mortgage sale, as part of a duty of care to new homeowners who are taking on a significant financial burden.
3. The level of death benefit needs to be explained to all, so that everyone can make a decision about how it fits within their protection needs: From April 2016, the current system of bereavement benefits will be reformed. Aviva urges the government to support the reform of bereavement payments with an engagement campaign that encourages families to understand the financial implications of death.
4. Protection should be a required discussion point when a couple determines the details of their divorce / separation settlement: Only one in four of the families who receive support for their children from a former partner know for definite that this partner has protection in place, therefore safeguarding the payments they receive. Aviva believes that couples who divorce or separate should be required to discuss protection issues as part of any financial settlement.
5. Protection is a foundation skill in understanding finance and as such should be a key module in personal finance education: From September 2014, personal finance education will be part of the national curriculum in secondary schools for the first time. Aviva believes that financial protection should be prioritised within the lesson planning process. This is because of its importance when it comes to creating family units that are not financially vulnerable to external shocks.
6. Income protection could be offered through a workplace scheme: Employers have played a crucial role in helping millions of consumers to save for the future through pension auto-enrolment. There is now an opportunity to build on this success, by encouraging employers to offer other financial products, such as income protection.
Louise Colley, protection director for Aviva says: “Protection is the bedrock of financial planning and gives families the confidence that they can build their futures without fear of the unknown. We believe every family deserves to understand the financial risks they face and the importance of protection. By working together, the government and the industry can make sure that families have the stability they need.”
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