The M Word: Do you have protection?
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During this troubling time, your finances might be more important to you than ever. Our financial columnist, Rachel Stewart, talks Hood readers through the things you need to know to protect yourself and your loved ones.
Do you have protection?
Without a doubt, it's an awkward conversation to have with your loved ones when discussing how you would cope financially with a distressing event that would leave someone unable to work. Indeed, the provision of an income to replace one which has been lost often gets forgotten about. For me, this area of protection is by far the most important. The average period for which income protection is claimed is six years – how long would you last without help?
There are two distinct groups of people with different issues here – those who are employed and those who are self-employed.
I am an Employee
Can you guess what the response is most of the time I ask the question 'what would happen if you had an accident or were too unwell to work? The phrase I hear most often is, 'I'm fine, get sick pay from work.' How accurate is this assessment?
Well, Statutory Sick Pay is a little over £90 per week—how does this compare to your typical salary, which you rely on to pay your mortgage and bills as well as maintain your lifestyle? It is true some employers will pay slightly more than this, but it is worth digging out your contract and having a look. The reality is that most employees will find that the payments stop after 28 weeks. With an average claim on an income protection policy being over six years, as noted above, it is easy to see that there is an enormous gap here.
Millions of working families are making financial decisions based on the assumption of employer financial support should they need it. The truth is that this assumption will not be matched by reality for many.
I am Self-Employed
Without any personal provision, the financial security of the self-employed is particularly compromised if they are unable to work due to sickness. If there is no income protection insurance in place, the only other option for the self-employed is to rely on savings. These savings are likely earmarked for your or your family's financial future. Or maybe they represent security for the future of your business.
In a YouGov survey in 2015, fifty-eight per cent of the self-employed people surveyed said their business would fold immediately if they were unable to work due to their health. For self-employed people, ill-health could threaten not just current income, but future livelihood too.
Where does this leave us? Research from Canada Life suggests that, should women at the height of their financial and family responsibilities (aged 25 to 45) fall ill, their household could suffer up to £25,000 per year in lost income and other contributions. Yet more than half of women in this age group do not have any protection insurance. This is compounded by the fact that many of the women in this age group will have dependent children.
Why are we so hesitant to protect our loved ones, ourselves, and our lifestyles when we don't give a second thought to shelling out to protect our mobile phones? What's your priority?
My view is that, as opposed to saving for the future, which has tangible benefits, many see protection as something which they hope never to benefit from. Therefore, they struggle to get their head around it, and it always falls to the bottom of the 'to do' pile because they are avoiding those difficult thoughts and conversations.
With the right guidance and advice from a professional financial planner, there is a protection solution for everyone and every budget. There are also numerous other benefits to seeking assistance, such as access to value-added perks from the insurance providers, which would not be available other than through a financial planner.
There is nothing more valuable in life than loved ones, health, and lifestyle – please don't take it for granted and, instead, ensure you have the right protection in place. Please get in touch with me for a no-obligation financial review, and together, we can protect the most critical aspects of your life.
Should you wish to discuss anything I've detailed further, please don't hesitate to reach out. You can find my details at Traprainfinancial.co.uk.