Young people at the center of the protection gap

The large protection gap in the UK is well publicised and young people appear to be at the center of this issue. The Financial Times reports on some recent research showing the low proportion of young people taking out personal protection plans relative to older cohorts. This evidence would suggest an increased need for financial eduction in British schools.

In the Financial Times article it was reported that just 2.4 per cent of applicants for life insurance were made by individuals aged under 25 years. The figures for income protection insurance and critical illness cover were slightly more positive at 6.1 per cent, although still remaining low compared to other age bands.

With so many couples starting families in their early twenties it is vital to consider arrangements for financial protection. It is understandable that younger generations have less concern over long-term illness, injury or death given that it is statistically less likely to happen to them but the risk is still there and very real. For example, according to Cancer Reasearch UK 1,875 UK teenagers and young adults (15-24 years) were diagnosed with cancer in 2006.

Although the chances of suffering an illness or injury are lower for those under the age of 25 years the rates offered by income protection insurers will reflect this. It might also work out cheaper to take out a policy with guaranteed premiums before the age of 25 years when the likelihood of having to declare medical conditions are reduced.

In this light it makes sense to investigate the options for personal protection even if you are under the age of 25 years as illness or injury can strike at any age, albeit with reduced probability at younger ages.

In terms of the main policy options, income protection cover pays out a monthly benefit if the policyholder suffers illness or injury that prevents them from working. The other main option is critical illness cover which pays out a lump-sum upon the diagnosis of a serious illness or disability.