It’s every family’s worst nightmare: the main breadwinner being unable to work and the worry of paying the bills. Mortgage or rent payments become increasingly difficult to meet and the family could be at risk of ending up homeless.
There are state benefits in place which are designed to assist in situations like this and act as a safety net but they are limited and inevitably much lower than the family’s previous income. Therefore, maintaining a previous standard of living is virtually impossible.
It is important that people have contingency plans in place to ease the burden that ill health can bring. For example recent research* found that over 75% adults in the UK with children under 16 have no form of financial protection. The research also found that over half of this group said that their savings would last only a couple of months if illness stopped them from working*.
Despite being aware of the risk, many people choose to put off planning, yet many do not know how they would manage financially if they were to lose their income. Without making contingency plans a person will be dependent on the short term provision of their employer (if employed) or have to turn to the state for Employment and Support Allowance (ESA).
At present, Statutory Sick Pay (SSP) in the UK is £87.55 per week and is paid by your employer for a period of up to 28 weeks. However, not everyone qualifies for SSP and there are a number of criteria that need to be met before you can receive it. Employment and Support Allowance (ESA) pays a maximum of £108.15** after a period of assessment, so the risk is that a person will almost certainly lose a substantial percentage of their salary if they have to depend either on the state or their employer.
But what other options are there if you think that SSP or ESA wouldn’t be enough for you to live on?
You could try to accumulate an emergency savings fund when times are good. According to most financial advisers this should total at least three months’ salary and needs to be accessible – so it’s no good tying the cash up in long-term investments or taking out fixed-term savings accounts.
However, an emergency fund will only last so long and while you are relying on it you will inevitably not be making contributions to it. The reality is that after a certain number of months you’ll find yourself in a precarious financial situation once more.
A better option, therefore, is to take out income protection insurance which would provide a monthly, tax-free income to help you meet your financial commitments. It will ensure that all of your essential bills can be covered and your life can continue comfortably – allowing you to concentrate on making a full recovery.
Unfortunately, you don’t know what is around the next corner until it’s upon you. You can, however, plan for most eventualities ahead of time. Income protection insurance is wide-ranging and there are a number of different options of cover available – the monthly premiums could be a lot lower than you think.
For many years at Premier Choice we have been reminding our clients about the importance of protecting income. There still remains the misconception that the State will provide….well they will if you qualify, but you will then have to survive on a little under £100 per week!
Without income, all of the carefully laid plans of mortgage (or rent), pension, life cover, critical illness, private medical cover, etc. could fall by the wayside. Even the mobile phone may have to go. A frightening statistic is that people are more likely to insure their precious iPhone than their income.
At Premier Choice we offer a range of plans to suit all budgets, which can either be employer or employee paid. Please contact us for more information.
*Health Insurance Daily 29th Aug 2014