Insurance Curator LONDON — Rising mortgage arrears across the United Kingdom are driving a significant shift in the insurance market, as homeowners increasingly prioritize "living benefits" and integrated critical illness cover to protect against financial insolvency. Data released in late 2024 and early 2025 indicates that the pressure of sustained high interest rates has forced a move away from traditional life-only policies toward products that provide payouts during the policyholder's lifetime.
According to data from UK Finance, the number of homeowners in arrears of 2.5% or more of their outstanding balance rose by several percentage points throughout 2024, reaching levels not seen since 2014. This uptick in financial distress has directly correlated with a 12% increase in inquiries for income protection and critical illness (CI) insurance, according to industry analysis from the Association of British Insurers (ABI).
"The narrative of protection has fundamentally changed," said Marcus Thompson, a senior protection advisor at a leading London-based brokerage. "Clients are no longer just asking what happens to their family if they die; they are asking how they will keep their home if they are diagnosed with a long-term illness or lose their income. The mortgage is the primary driver of this anxiety."
The shift toward "living benefits"—a term encompassing critical illness cover, total and permanent disability benefits, and income protection—comes as mortgage holders face the "refinancing cliff." With many exiting low-fixed-rate deals and moving to rates significantly higher than those seen over the last decade, the margin for error in household budgets has narrowed.
In response, major UK insurers including Aviva, Legal & General, and Royal London have reported a surge in the adoption of integrated policies. These products bundle life insurance with critical illness cover, often including "waiver of premium" features that ensure coverage continues if the policyholder is unable to work.
A report by Swiss Re’s latest Term and Health Watch highlighted that while the total volume of new individual term life insurance fell slightly in 2024, the proportion of those policies including critical illness riders reached a record high. The report suggests that consumers now view insurance as a tool for "debt servicing" rather than just "legacy building."
"The market is reacting to the reality of the cost-of-living crisis," said Sarah Fletcher, an analyst at the Financial Conduct Authority (FCA). "We are seeing a trend where protection is being integrated directly into the mortgage advice process. It is no longer an optional add-on but a critical component of a household's debt management strategy."
However, industry experts warn that the cost of these comprehensive "living benefit" policies is rising alongside demand. As claims for mental health and musculoskeletal issues—the leading causes of income protection claims—continue to climb, insurers are tightening underwriting standards.
Despite the higher premiums, the perceived value of these products remains high among the "squeezed middle" demographic. For many UK homeowners, the threat of losing a home due to illness-related income loss now outweighs the long-term concerns of inheritance, cementing living benefits as the new standard in the UK protection market.