The study by Scottish Widows found that around 14.5m UK adults over 18 have a mortgage but only 50% hold life cover, down from 54% in 2013.
A fifth of mortgage holders said they had no idea how they would cover their household bills if they or their partner were unable to work due to incapacity, serious illness, an accident or death. A further 48% said their savings would last just a couple of months at the most.
Mortgage holders were also found to over-estimate the support they would receive from other sources, including their employer and the state.
Two-thirds (64%) believed their employer would pay them either a full salary or a full salary followed by a partial salary if they were off work for a long time.
The reality is that people may be eligible for statutory sick pay (SSP) at £87.55 for up to 28 weeks. Employees may also be entitled to occupational sick pay, a payment made over the level of SSP, dependent on a company’s policy and often their length of service.
This situation is compounded by the fact household spending by mortgage holders has increased. They spend an average of £1,393 each month on household costs, compared to £1,326 in 2013, the report found.
Financial resilience could further be impacted if interest rates rise, potentially pushing an increasing number of mortgage holders into severe difficulty, including a high number of first-time buyers who have never experienced a rise in rates, Scottish Widows said.
“Protecting a home is about protecting a way of life that encompasses family, community and often a business. With this in mind, the impact of losing a home could be even greater than we initially realise.
“Whilst affordability cannot be ignored, people with mortgages do need to review and develop a more robust plan to ensure they are protected should the unforeseen happen. It’s all about making sure you have the right cover at the right time of your life, giving people the peace of mind that their families will be able to keep their home and be financially covered come.”