Can you afford to be off work with a serious illness?

You are your biggest asset so why not insure yourself?

Covid-19 has forced us all to think about our own financial situation. The need for financial resilience, stability and control has become front of mind for many when faced with job insecurity or the possibility of falling ill and becoming incapable of working. Furlough is now a thing of the past we hope as we move out of the pandemic to the endemic phase, Omicron notwithstanding.

One question you should be asking yourself is: If I did suffer a serious illness or injury that meant you were unable to work for longer than 4 weeks, how would I cope financially?

According to Legal & General’s “Deadline to Breadline” 2020 Report, if someone lost their job due to illness or injury, the average household is just 24 days from the breadline, far shorter than the 90 days they mistakenly believe.

Almost 1in 3 say that they would rely on their savings if they were to become seriously ill or injured. However 2 in 5 households have less than £1,000 in savings and nearly 1 in 5 households (18%) have no savings at all, rising to 1 in 3 among low income households.

Of course, Coronavirus is only one of the many ailments that people may succumb to, which can result in them being unable to work. Some employers provide their staff with a period of grace, during which they will receive their salary, however once this has elapsed, and for those not fortunate to benefit from such cover, you can find yourself reliant on Statutory Sick Pay (SSP) which currently pays out a benefit of £96.35 per week, for a maximum of 28 weeks. After this, you may be eligible for Employment & Support Allowance (ESA) which is typically £74.70 per week rising to £114.10, dependent on which group you are in.

We would suggest that for most people, reliance on these benefits would result in a significant drop in income. The report says the average working household in the UK has an annual income of just under £35,000. One in five of these have an annual income of under £20,000 which is still a considerable amount more than either SSP or ESA.

Such a fall can have potentially devasting consequences. The Deadline to Breadline report suggested that the average households save nothing on a monthly basis leading to 1 in 5 households having no savings at all.

The report also outlines that nearly six times as many people insure their home contents, and four times as many pet owners insure their pet, rather than insure themselves through income protection. The irony of course being that the premiums for their pet or home insurance are paid out of their income.

An Income Protection policy does exactly what it says on the tin, it will protect your income (or a significant percentage of it at least) so that in the event of you being unable to work due to accident or illness, you can maintain a suitable income stream which will allow you to continue to meet your financial obligations, and crucially avoid being on the “breadline”. Cover is tailored to individual circumstances, allowing those who benefit from continued pay, to defer receiving the income protection benefit until after this period has elapsed. This can also help with the premiums on this type of cover.

At Armstrong Watson, our quest is to help our clients achieve prosperity, a secure future and peace of mind. We are Chartered independent financial advisers and can discuss and advise on all aspects of protection requirements personalised to your individual circumstances.