It’s not something we like to think about, but the truth is, people lose their income every day.
Illness, accident and redundancy are bad enough without having money worries. Bills don’t stop coming in because an income does, so while we hope for the best, it makes sense to prepare for the worst, and have a financial safety net in place.
Build an emergency fund
The simplest place to start when you are planning your financial security is to start is an emergency fund.
Having the equivalent of at least three, and even better six, months’ income to call on is a big help if you face a big unexpected bill or lose your income. You’ll have the peace of mind of knowing your bills and financial responsibilities will be taken care of.
You need a savings account to help your savings grow, with as much interest as possible – but make sure your money is accessible. Your emergency fund will not do you much good if you have to give three months’ notice before you can access it.
Check your sick pay
Your employer might offer generous sick pay – but some firms don’t offer sick pay at all.
Your entitlement should be included in your contract and understanding what you’ll be entitled to puts you in a better position to plan.
You can add more to your emergency fund if your employer is less than lavish.
Statutory Sick Pay (SSP) is paid by the government if you’re off work for a minimum of four consecutive days. It will pay out for up to 28 weeks. However, at just £92.05 per week, it will not go very far.
Get insurance protection
Government and employer protection are limited, and even the largest emergency fund will eventually be whittled away. Most of us have life assurance to provide a cash lump sum for our families if we died – but there are insurance products that can provide cash if we are still alive, but unable to work. There are several types to consider. You might need to take out more than one to get the range of protection you need.
Serious illness cover. Critical illness cover pays out a tax-free lump sum if you are diagnosed with an illness or medical condition listed in the policy. So, if you became too ill to work, you and your family could still have the cash you needed.
Most providers cover between 40 and 50 types of illness, but it is vital you check the terms of a policy before you buy. Some lower cost plans only cover specific illnesses. Most now pay something for an early-stage diagnosis, if not the full cover.
Income protection. If accident or illness made it impossible for you to work, income protection insurance could provide a replacement monthly income – rather than a lump sum – until you were fit enough to return.
Short-Term Income Protection policies, or Accident, Sickness and Unemployment cover, will pay out for one or two years, and can include cover if you are made redundant.
Long-Term Income Protection – naturally provides longer term cover, until you are well enough to return to work, until your retirement age or until the end of the policy term. Most Long-Term policies don’t cover redundancy.
What are the costs?
The cost of the cover will depend on the level of cover you have, and factors like your age. Arranging cover as early as possible can mean that your premiums are substantially smaller.
Your health and your profession will also influence premiums, meaning that getting the cover you need without paying too much can be complicated. Expert help can ensure you have the cover you want – naturally, at Continuum we would be happy to provide it.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.