In these tough economic times, many individuals in the UK are looking to cut costs wherever they can and although people are still taking out new loans for house purchase and other reasons, a growing number are not taking out life insurance to protect their loan, in the event of anything happening to them.

Over the course of last year, the Council of Mortgage Lenders (CML) statistics showed that there were a total of 925,000 new home owner loan taken out. However, the Association of British Insurers (ABI) only recorded a total of 636,973 new life insurance plans being taken out for loan protection.

With household debt on personal loans and credit cards increasing significantly in recent years, and average household income either staying constant, or in many cases, reducing, it is only natural for people to look for areas where they can cut down on their expenditure, but not taking out life cover to protect a new loan is clearly a false economy.

The new report has been put together by the independent research company Defaqto and highlights the need for more awareness of the need for protection products, as almost one third of all new loans seem to be taken out without any form of protection.

Ben Heffer of Defaqto said “In some cases there may be prevailing individual circumstances that dispose for the need for life cover. However, the figures suggest that there are many people taking on debt whose loved ones would have no means of paying it off for them if the worst should happen.”

“The protection gap does not just apply to life cover, but also a real problem when you look at income replacement products, with so little income protection being sold.”