Helping clients in the danger zone

Chancellor Gordon Brown wants to see the private and public sectors working together on rehabilitation schemes - trying to get people back to work and earning again. This is admirable and shows great commitment from the government, but does it go far enough?

What we need is for the government to develop a strategy on how the private and public sectors could work together to help plug the protection gap.

The story of the protection gap in this country is long and its existence is indisputable. But to understand it we need to look at who is at most risk and why.

We know that, on average, households are underprotected by about 52,000 if they are to survive a crisis and by about 42,000 if a breadwinner dies. The latter involves a smaller gap due to the prevalence of employee group life schemes.

In this country, we have easy access to money in the form of mortgages, loans and credit cards. This, combined with the rising price of property, means that we increasingly rely on two incomes.

Of course, we have state benefits which help to meet our basic protection needs but recent research from Scottish Widows shows that it is people on the lowest incomes who are best placed to survive on these benefits should the worst happen, as state benefits provide a greater income replacement ratio to people on lower incomes.

We also see that those with more than 30,000 in liquid assets have enough money to cope but they should still take out protection if they want to do more than just cope and instead wish to maintain their standard of living.

That leaves us with the majority of the population who are stuck in the middle and are most at risk.

People who earn more than 20,000 a year but have less than 30,000 in free capital are the ones who are in the danger zone.

If the worst happened to them, no amount of cutting back would allow them to meet their essential payments and survive on benefits alone. As they had previously enjoyed higher incomes, it’s more likely that they will have mortgages and other outstanding debts to match.

If the state, the industry and employers – and let’s not forget the role of employers in providing benefits – could work together, we could tackle the problem of the protection gap. This is why we need to work with the government to develop a strategy so that state benefits and private sector products work in harmony.

Until then, it’s up to everyone in the industry to keep working to get the message across to consumers to make sure they are prepared and protected – especially those in the danger zone.