How prepared are you if you unexpectedly lose your income?

One of our Financial Planning Consultants, Carlisle-based Derek Baty, recently brought to light the third edition of Legal & General’s ‘UK Deadline to Breadline’ report, the content of which is quite thought provoking.

For those not familiar with the report, it looks at people across the UK and how they could cope financially in the event of an unexpected reduction in or total loss of their income, due to unemployment, sickness or injury, or in the worst case scenario, the death of a breadwinner.

According to the research, the general perception is that in the event of having to rely only on savings and state benefits such as statutory sick pay, the average household in the North West believe they that it would be able to manage financially for 80 days. Worryingly, the report paints a very different picture, as the actual period which the household could continue to support their current spending habits would be just 15 days. Across the Pennines, the North East has an even lower threshold and the lowest ability to manage of all regions - a staggering 11 days. For Scotland it is a mere 28 days.

The L&G report highlights that the average household income in Northern England is £21,680 per annum and despite the fact that 65% of those surveyed stating that in preference to taking out insurance they would rather save to protect themselves against the unexpected, 38% of North West households have no savings at all. Assuming that most people adequately insure their cars, homes and pets, it is surprising that they apparently don’t feel the same need to protect their income.

Of course there are those who are fortunate enough to have an employer who will continue to pay some or all of their income in the event of sickness or injury, but it may be worthwhile finding out exactly how long this would be for, as even the most generous arrangements rarely provide this indefinitely.  

Perhaps the Government will help?

On average, respondents to Legal & General’s research expected to receive £59 per week from the State following an illness. The good news is that for those who are entitled to receive state support the actual benefit is greater, at £86.70 per week, but the downside is that this will only be paid for up to a maximum of 28 weeks. When you consider that the average weekly household spend is £362 per week, the reality is that neither of these figures is remotely adequate, so in many cases it is essential to consider some form of contingency arrangement, but this needs to be looked at now, not when it’s too late.

Taking professional advice in this area is crucial, but needn’t be daunting, as the level of protection needed and the cost involved can usually be tailored to suit most circumstances. Our Financial Planning Consultants can help you through this and would be happy to review any existing plans you have in place to ensure they continue to meet your needs.

It will be interesting to see Legal & General’s next report and whether there are more people choosing to protect what is perhaps their most important asset - their income.

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