Buying insurance is not the topmost priority for most young adults. General Reinsurance Corporation (Gen Re) conducted a survey of 18 to 40 year old workers to understand why the appetite for personal insurance is low in young adults. According to the survey, cost was not the principal reason for young adults not buying insurance cover. Most young people (around 60% of the people surveyed) failed to see the need for life insurance when they did not have families or mortgages. 58% of the people surveyed bought travel insurance, 54% bought home contents insurance and 22% bought mobile phone insurance, while only 16% bought personal life insurance. These statistics reveal interesting insights about the attitude towards personal insurance among young adults.
Young adults are more vulnerable now than before
Even a couple of decades back, young British adults constituted one of the most important customer segment of the financial services market. But the situation has changed now. The millennials, people who were born after 1980, are economically more vulnerable than their parents ever were. High debt burden, slowing labour market and expensive housing have resulted in lower percentage disposable income for young workers. When getting a mortgage is increasingly becoming difficult for young workers, even though they are paying more money in rent, buying personal insurance, like life insurance or income protection, is unlikely to be foremost in the minds of young adults today.
It is quite understandable that, for young workers who may be paying thousands of pounds in student loans, debt repayment is more important to them than financial protection through insurance. Millennials are saving less than previous generations. According to Office of National Statistics (ONS) 2018, 53% of young adults in the age group of 22 to 29 years have no savings at all. Around 40% of 22 to 29 year olds who manage to save, have less than £ 1,000 of savings in their bank accounts, 10% have £ 1,000 – 2,000 savings and another 10% have £ 2,000 – 3,000 savings. These figures show that a large percentage of young adults are at risk of running out of money, if they are unable to work due to accident, sickness or redundancy at their workplaces. . According to ONS Annual Population Survey, around 40% of young adults (in age group of 22 – 29 years) live in rented accommodation. The cost of renting is putting additional pressure on young people who want to live of their own.
Income protection is a critical need for young workers
A number of surveys have suggested that the millennials are the most under-insured generation after the war. Studies have shown that millennials tend to have less insurable assets and is a major reason why they do not feel the need to buy insurance. A PricewaterhouseCoopers (PwC) study suggests that by 2025, a clear majority of people aged from 20 to 39 will be private tenants instead of home owners. Office of National Statistics (ONS) show, wage growth in the March to May quarter was 3.4%, higher than consumer price inflation of 1.9% but this does not necessarily imply higher savings.
Further, there has also been an increase in in the number of young adults under the age of 24 not in education, employment or training in October to December 2018 compared to previous year. There were 788,000 young adults (under 24) who were not in education, employment or training in October to December (2018) quarter; 31,000 more compared to the previous quarter. In this age group, the number of people looking for employment was around 315,000 and the rest was classified as economically inactive. . Large sections of millennials have no idea of how to cope in a personal financial crisis. These economic circumstances make Accident, Sickness and Unemployment (ASU) insurance a critical financial consideration for young workers.
Why ASU insurance is the right product for young adults?
Accident, Sickness and Unemployment (ASU) insurance provides policy holder's income replacement up to a certain percentage of their income over the policy term (usually up to 12 months), if the policyholders are unable to work due to sickness, injury or redundancy at work. Standalone Unemployment or Accident and Sickness, or combined ASU cover can be purchased separately. While the cost of a standalone unemployment policy is lower (usually 80% of an ASU policy), an ASU policy provides comprehensive protection. Consumers can make ASU insurance claims provided the conditions and circumstances triggering the claim laid out in the policy document are fulfilled. ASU insurance policy pay-outs will cease once the insured starts working and receiving wages again from their employers.
There are several advantages of buying Accident, Sickness and Unemployment insurance policy when you are young. The young tend to have very few serious health conditions, which means they get far more comprehensive ASU insurance cover. The cost of insurance for younger people is generally lower and may, in certain circumstances, be cheaper overall to purchase while still in their 20s. As one gets older and more likely to develop medical conditions like back or spine problems, certain types of diabetes, stress, anxiety and depression related disorders, insurers may exclude cover for these as pre-existing medical conditions.
The insurance sector in the UK is very robust and income protection insurance claims pay-out rates are at record highs. Data collected by Association of British Insurers (ABI) shows that the total income protection claim value paid has increased substantially over the last few years to close to £ 650 million in 2018. The average income protection claim paid increased by more than 120% from 2013 to 2018, from £ 11,500 in 2013 to £ 25,113 in 2016. Data collated by Association of British Insurers (ABI) suggest that, nearly 98% of all protection insurance (e.g. life insurance, critical illness, income protection) claims were paid by insurers in 2018. For more details with regards to income protection claims statistics, please refer to our blog post, INCOME PROTECTION INSURANCE CLAIMS.
Accident, Sickness and Unemployment insurance cover should really be the first priority for anyone who has started earning, irrespective of whether the person owns a property or has a family. In fact, young people should consider buying ASU insurance even before they buy a property or start a family with their partners. With regards to how much ASU insurance cover one should buy, we suggest reading the blog on the Realm website, WHAT IS THE RIGHT AMOUNT OF ACCIDENT, SICKNESS, UNEMPLOYMENT (ASU) INSURANCE COVER?, bearing in mind, cover for younger adults can generally be purchased at quite low costs. A lot of information related to ASU insurance is available online, including our website https://www.realmprotection.co.uk. In addition, it may be helpful to contact a financial adviser to understand more about Accident, Sickness and Unemployment insurance.