Life does not always go the way we want. A business can fail, accidents happen, and illness can strike. Bills need to be paid and your family needs food on the table, even if money isn’t coming in. If you can’t work, your home and the people who depend on you could be at risk. What’s more, you need to ask yourself a painful question. How would your loved ones manage without you?
Some financial precautions could help if things go wrong – but everybody needs a safety net that is tailored to their needs.
At Continuum we see tailored financial safety nets as part of your overall financial planning requirements. We believe that while any kind of provision is better than nothing, the right kind of protection means peace of mind, and keeps costs under control.
How does a financial safety net work?
For most people, the first strand of a financial safety net should be an emergency fund to provide cash until you get back on your feet; many financial experts recommend a cash reserve equal to about three to six months’ worth of your income. As your income grows, so will your commitments, so you may need your cash reserve to do the same.
This growth is important. Having a six-month reserve of cash gathering dust – but little interest – in an instant access bank account is expensive. One solution could be to put enough cash for the first month in an instant access account, and the rest in a higher rate account, with 30 days notice to get your money.
Growing your fund is easier when your cash is earning interest – and easier still if you set up a standing order to pay into it each month. Your emergency fund could grow into a very useful nest egg if you are fortunate enough to never need to call on it.
At Continuum we can help you find a home for your emergency fund, where it can grow as well as provide security by using our Cash Calculator, a simple tool to calculate the best saving rates available to you.
Tailored insurance protection
Your emergency fund is the first step, but for a full financial safety net, you must have insurance cover tailored for your needs.
Life insurance cover is vital, especially if you have a spouse or other dependents. In the event that either spouse or partner were to die a lump sum could be used to pay off the mortgage, ensuring that your loved ones have a home, and maybe provide a cash lump sum, which could help replace an income.
It is possible to have too much cover, making your premiums harder to afford, but for most people the risk is not having sufficient cover in place.
A chat with a Continuum advisor could help you decide the level of cover you need and find the most cost effective policy to provide it.
Critical illness cover and Income protection insurance
While most people understand the importance of life insurance, many leave themselves vulnerable if illness or injury left them unable to work.
So, another thread in your financial safety net should be Critical Illness Cover (CIC). This pays out a tax-free lump sum if you are diagnosed with illnesses listed in the policy, which usually include most forms of cancer, heart attack and stroke. Like life insurance, it can be arranged at a level to pay off your mortgage and to provide a replacement income.
This is an important type of cover, but you may also need Income protection insurance as part of your safety net. There are two main types.
The first is Permanent Health Insurance or PHI. This pays a proportion of your salary in the event of illness or a debilitating accident that stops you working permanently, and can continue until your normal retirement age.
The other is Accident, Sickness and Unemployment (ASU) cover. This can provide a replacement income in the event of illness, accident or redundancy for a maximum of 12 or 24 months.
The Continuum team can help you see the level of cover you need, and the best way to provide it.
Arranging your financial safety net
Investing in the financial safety net you need is easier and can cost less with expert help. At Continuum we can discuss the scenarios you may need to prepare for, and then help you decide on what type of policies you need, and the levels of cover from each one.
To find out more, simply call us.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate deposit accounts.
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.
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