Many Brits are lacking a financial safety net to protect them from income shocks. It means they could be putting their home, possessions and lifestyle on the line, research suggests.
Family finances are stretched, and many are choosing not to put money away for a rainy day. However, with worries about what would happen if income were to unexpectedly stop, taking steps to boost financial resilience is important.
Research from Aegon found:
- 45% would rely on their savings if the main earner was unable to work for six months or more
- But only 21% think they’d have enough savings to get by
- One in 10 people don’t know how they’d cope if they were out of work for six months or more
- 70% have no form of financial protection
With 36 million people having no safety net to support them, and many having limited savings, a financial shock could devastate families.
This research was supported by a survey undertaken by Zurich. Shockingly, it revealed that one in eight people would have to sell their family home if they lost their income.
More than half of adults have been out of work at some point, either through redundancy, injury or illness. But many are failing to take steps to protect their finances should it happen again.
There are two key steps individuals can take to create a safety net; build up an emergency fund and take out a protection product.
It’s advised that you have around three months’ salary squared away for when emergencies arise. It means should something happen you don’t have to immediately worry about how you’ll pay the mortgage, household bills or other essentials.
But despite this, 9.79 million households (36%) in the UK have no savings, according to The Money Charity. A further 3.54 million (13%) have less than £1,500 in savings. It’s likely that savings are earmarked for other purposes too, from upgrading the family car to a holiday. As a result, relying on savings that aren’t set aside for emergencies may derail other plans as well.
Building up an emergency fund can seem like a daunting prospect when you look at the goal figure. With so many other priorities, it’s a task that can end up on the backburner. But setting aside small amounts each time you get paid can make it more manageable.
Knowing that should your income stop or you face an unexpected bill you do have something to fall back on can give you peace of mind.
An emergency fund can tide you over in the short term. But if you’re off work for months or unable to go back, what do you do? This is where a protection product can help.
There are different types of protection products that will pay out in certain circumstances, for example, Income Protection, Life Insurance and Critical Illness cover.
For those that want to protect themselves against the loss of income, Income Protection may be suitable. Depending on your policy, it can cover loss of income due to illness and injury. It will pay out defined monthly payments, usually a percentage of your typical income, until you’re able to go back to work or, in some cases, retire.
It’s a common misconception that policies don’t pay. However, in 2017 over 97% of claims were upheld. Insurers collectively paid out £13.9 million per day in Income Protection, Critical Illness cover and Life Assurance.
If you’re a policyholder of Income Protection and want to make a claim, it’s usually straightforward. You will need to prove your standard income and that you’ve lost it, for example, with payslips. You may also need to prove why the income has been lost, such as a medical report if it’s due to illness.
According to Aegon, one of the biggest reasons people don’t take out Income Protection is cost. A fifth (19%) believe that it will be too expensive. However, the research indicates that many are overestimating how much protection might cost. And when you factor in the consequences of not being able to pay essential bills, Income Protection can seem more appealing.
A further fifth (19%) cited not having any dependents as the reason they don’t have any form of protection. But if you’d struggle to pay essential outgoings without your typical income, it’s something that’s worth looking into.
Simon Jacobs, Head of Underwriting and Claims at Aegon, said: “Protection is there to replace an individual’s income when unexpected events occur. In the worst case scenario, this covers death, but it can also provide support when people are struck by serious illness. It’s an important safety net that can help people meet their monthly expenses, ranging from mortgage repayments to their supermarket shopping.
“However, the reality is that far too many people in the UK are putting themselves and their families at unnecessary risk by not taking steps to financially protect themselves. Across the UK, people insure their home, pets and their mobile but overlook the vital component that funds all their day-to-day spending – themselves.”
If you’re worried about how your finances would cope should you lose income, we can help. From advising on protection products that suit you to suggesting ways your money can work harder to provide a buffer, please contact us today for more information.
Please note: If you do not maintain your Income Protection premiums, your cover may lapse.