How would you cope financially if you were unable to work?
This is a truly alarming statistic: If the average Brit was unable to work, their savings would last just 52 days.
New research from Yorkshire Building Society reveals that, on average, we have £2,474 in easy access savings, but with average monthly expenditure coming in at £1,445, our money would run out in less than two months.
Worse still, the cost of living is rising fast right now with food, petrol and energy prices increasing far faster than the official rate of inflation. This means we could be faced with financial disaster even sooner.
Yorkshire BS claims far too many of us of don't have enough insurance to protect our lives or our income. Their report shows:
- 53% have no life insurance;
- 83% have no critical illness cover and,
- 90% have no income protection insurance.
But it would seem buying insurance products are a long way down our list of financial priorities. The Yorkshire asked:
How would you manage financially if you couldn't work? | % |
|---|---|
Rely on State benefits | 21% |
Fall back on your savings | 16% |
Rely on financial support from your partner | 16% |
Claim on cover provided by your employer | 7% |
Rely on help from your family | 6% |
Sell your house | 5% |
Claim on personal protection products | 4% |
Don't know | 21% |
Source: Yorkshire Building Society. The Protection Gap: How the UK is Living on the Edge. July 2008.
The answers are a real concern. Just 4% would be able to claim on protection products if they lost their income due to an accident or ill health. And it alarms me that one in five people has no idea how they would cope financially.
Failing to protect your income is taking a big risk. The 21% of people who would rely on State benefits may be surprised to hear that Statutory Sick Pay is a measly £75.40 a week. And given that the average weekly spend -- including essential, luxury and debt expenditure -- is £333.56, benefits will fall seriously short.
Remember, if you're self-employed you won't be entitled to claim Statutory Sick Pay, so the need to protect your income is even greater with no help from the State.
Selling your home isn't necessarily a good solution either. As you know, house prices are now falling and the housing market, in general, is slowing down. Selling-up probably won't be a quick, easy or cost effective way of supporting yourself if you can't work.
How can you protect yourself?
It's your responsibility to make sure you can cope financially if you lost your income. If you can't rely on your partner or family to support you and there is little or no cover provided by your employer, then think about insuring your income now.
There are two main insurance policies you can use to protect yourself: Critical Illness Cover (CIC) and Income Protection Insurance (IPI). Both of these policies pay out benefits in the event of illness or accident.
CIC provides a lump sum payment if you're diagnosed with one of the specified conditions covered by the policy. Typically, you'll be covered for the following core conditions:
- Certain types of cancer
- Coronary artery by-pass surgery
- Heart attack
- Kidney failure
- Major organ transplant
- Multiple sclerosis
- Stroke
Most plans also protect against a range of additional conditions so make sure you check the terms and conditions to find out exactly what's included. If you're well enough, you may even be able to continue working but still make a claim.
Meanwhile, IPI is designed to replace a proportion of your income until you're ready to return to work. The maximum benefit is usually 50% to 65% of your salary. This type of policy will protect you from any illness or accident that prevents you from working. However, some policies will cover you if you can't do your own job while others might only pay out if you can't do any job.
Of course, the latter is the cheaper option but cover is less comprehensive as your claim will only be successful if you can't work at all in any capacity.
With both types of policy, watch out for any exclusions which could affect a claim. And remember, neither covers unemployment or redundancy.
How much will it cost?
Using The Fool's insurance search today, the most competitive policy I can find provides CIC combined with life insurance for £25.42 a month for women. This premium provides £100,000 worth of cover*.
For income protection insurance, the cheapest premiums come in at £19.53 for men and £30.23 for women, which provide a monthly benefit of £1,250 to replace a proportion of lost income**.
Remember these quotes are just ball park figures, but they should give you a rough idea of how much it could cost to protect yourself if you can't work. It seems to me like a relatively small price to pay.
More: Cut Your Life Insurance Costs By 50%...But Hurry! | How Not To Buy Life Insurance | Compare quotes for life insurance with critical illness cover at The Motley Fool Life Insurance Service
*The quote provides £100,000 of life insurance with critical illness cover for a female aged 30 who doesn't smoke and is in good health. Policy term is 25 years. Premium is guaranteed to stay the same. Your premium may be higher depending on your own circumstances.
**Quotes provided by www.godirect.co.uk. Quotes provide monthly benefit of £1,250 for a male aged 30 or a female aged 30. Cover lasts until the policyholder is 60. Benefits will be deferred for 13 weeks after a claim, which means you will have to wait for this period before you receive anything. Premiums are guaranteed to stay the same. Your premium may be higher depending on your own circumstances.