The Financial Conduct Authority (FCA) has published the final report of its pure protection market study, and its headline concern is the number of people with no cover at all. This article explains what the products are, what the “protection gap” means and how to think about it as part of household planning.
What has the FCA just said about protection insurance?
The FCA’s market study page shows that the final report on the distribution of pure protection products was published on 21 September 2026. According to the regulator, competition generally works well for people who already hold these products, with a wide range of products on offer and high claims acceptance rates.
The concern lies elsewhere. The FCA says 58% of people do not hold any protection product. Its January 2026 statement on interim findings used the same figure, adding that many of those people could benefit from cover. The regulator describes this as the “protection gap”, and it worries in particular about cases where limited awareness or difficulties in the sales process make cover hard to reach.
The FCA does not propose sweeping new rules. According to its study page, the response will run through existing frameworks, with the FCA, industry bodies and other stakeholders each taking forward the measures they are best placed to deliver. Work is due to begin from October 2026, and the regulator expects industry-led actions to start by the end of 2026.
What counts as “pure protection”?
Pure protection is the FCA’s term for insurance designed to help individuals and their families financially if the policyholder dies or cannot meet their commitments. The regulator’s study concentrates mainly on four types:
| Product | What the FCA says it does |
|---|---|
| Term assurance | Pays a lump sum to beneficiaries if the policyholder dies within a set period |
| Critical illness cover | Pays a lump sum to the policyholder if diagnosed with a prescribed, non-fatal serious illness or condition |
| Income protection | Replaces part of regular income if illness, accident or disability stops the policyholder working |
| Whole of life insurance | Covers the policyholder’s lifetime and pays a lump sum to beneficiaries on death |
The word “pure” matters. These policies do not build up savings or investment value in the way some other financial products do. They exist to pay out when a specific event occurs, which is why they are priced and sold differently from, for example, a savings account.
Why do so many people have no cover?
The FCA’s own explanation is that many people are not prompted to think about protection. Its January 2026 statement points to consumers being unaware of their needs and not being asked to consider them, along with ability to pay, misunderstandings about what the products do, and problems with the sales process.
Several plausible reasons sit behind this. Protection is a product bought against events most people hope will never happen, so there is little natural moment to shop for it. Lump-sum and income-replacement policies also differ in subtle ways, such as the definition of a covered condition or the length of a waiting period, which can make comparison feel daunting. And premiums are a monthly cost that competes with rent, energy bills and food.
None of this makes buying cover automatically right. For some households, the money is better directed elsewhere, and the FCA itself talks about helping people consider their needs rather than urging everyone to buy. The point of the “gap” is that for many people the choice is made by default, not on purpose.
How does protection fit alongside sick pay and savings?
Protection insurance is one layer in a wider structure. Before looking at a policy, it helps to map what already exists:
- Employer and state support. As explained in our guide to what Statutory Sick Pay covers, the statutory minimum is a floor, and the gap between it and normal earnings can be large. Some employers pay more through contractual schemes, and that is worth checking in a contract or staff handbook.
- Savings. An emergency buffer pays for short interruptions. Our look at building a practical safety net covers how households size one.
- Insurance. Protection policies are designed for the longer or larger events that savings cannot absorb.
The wider idea is financial resilience, which we explore in what financial resilience means. Cover sits alongside cash reserves and manageable debts, not in place of them.
Which risk does each product address?
The four product types answer different questions, and mixing them up is a common source of confusion.
Life cover and whole of life
Term assurance and whole of life policies address the financial consequences of a death. A household with a mortgage, children or a partner who relies on one income is the textbook case, although the question of how much is needed depends on individual circumstances.
Critical illness cover
This pays a one-off lump sum if the policyholder is diagnosed with a condition listed in the policy. The FCA’s definition stresses that the condition must be “prescribed”, meaning it must match the policy’s wording. A serious illness that is not on the list may not trigger a payment, which is why reading definitions matters.
Income protection
This replaces part of earnings if illness or injury stops someone working. The FCA describes it as replacing a portion of income, not all of it. Policies commonly include a waiting period before payments begin, so the interaction with sick pay and savings during that waiting time is central to how useful the policy is in practice.
What might the gap look like in a household budget?
The following is a purely illustrative worked example, not a quote or a forecast. Imagine a household whose main earner brings home £2,400 a month after tax, and whose essential outgoings (housing, utilities, food, transport and minimum debt payments) total £2,100 a month.
If illness stops that earner working and the household has no protection, the shortfall depends entirely on any employer pay and savings. If a hypothetical income replacement of 60% applied after a waiting period, the arithmetic would be:
- 60% of £2,400 = £1,440 a month
- Essential outgoings = £2,100 a month
- Monthly shortfall = £2,100 − £1,440 = £660
So even with a policy, this household would need £660 a month from other sources, such as a partner’s earnings, savings or reduced spending. Without one, the shortfall would be the full £2,100 less whatever sick pay and benefits provide. The example shows why the interaction between layers matters more than any single product, and why “partial replacement” is a feature to understand, not a flaw to be surprised by.
What should readers ask before looking at any policy?
Because this article is education rather than advice, the useful output is a set of questions that apply to anyone weighing their position:
- What already exists? Check sick pay terms, any death-in-service or other workplace benefits, and the size of savings.
- What would a loss of income cost each month? Work out essential outgoings first, then compare them with realistic income during illness.
- How is the event defined? For income protection, find out how “unable to work” is assessed. For critical illness, check the list of conditions.
- When does payment start, and for how long? Waiting periods and payment limits shape the real value.
- What are the exclusions and conditions? Pre-existing health conditions and occupation can affect cover and cost.
- Can the premium be afforded for the long term? A policy that lapses after a few years because it became unaffordable may not deliver what was expected.
For anyone who finds the options confusing, regulated intermediaries are a major route to market. The FCA’s study of distribution is partly about how well that route works, which is why the regulator is looking at conflicts of interest in how commission is structured.
What happens next in the regulatory process?
According to the FCA’s study page, the next phase is implementation. From October 2026 the regulator is engaging with industry and stakeholders to set up delivery arrangements, and it expects meaningful progress within 12 to 18 months. It is also planning a TechSprint, a collaborative innovation event, for the third quarter of 2027, subject to sufficient interest. Expressions of interest are due by 13 November 2026, and the FCA says it will confirm by the end of 2026 whether the event will go ahead.
For consumers, this means no immediate change to what is on sale or how it is regulated. The likely effect, if the programme succeeds, is gradual: more prompts to consider protection needs and potentially easier ways to access cover.
Conclusion: treat the gap as a prompt to check, not a prompt to buy
The FCA’s figure of 58% without protection is a statement about awareness as much as about money. The sensible reading for households is to understand what support already exists through work, savings and the state, estimate the monthly shortfall a long illness would create, and only then consider whether any product fits the remaining risk. Cover can be valuable, but it is one tool among several, and its terms matter as much as its existence.
This article provides general information, not personalised financial advice. Rules, regulatory plans and prices change, so check current details before making decisions.
Sources: Financial Conduct Authority
