What would happen to your household finances if you or your partner had to give up work from tomorrow?
While time off work is usually something to look forward to, suddenly losing an income due to illness, injury or death would leave approximately 9.79 million households in financial crisis, according to research from The Money Charity.
There are three main things which will protect your family in the event of a sudden fall in household income. Each forms an important part of your financial plan and should be regularly reviewed to ensure that your household is fully protected and that your family’s needs will be covered in the event of an emergency.
If you are among those with no financial back-up, please read on. But equally, if you are among the older generation and are fortunate enough to consider yourself well prepared for any eventuality, it may be worth considering the following information in light of your children or grandchildren’s situations. Are they prepared, could you afford to help if they suddenly lost an income… and is it ‘wake-up call’ time?
According to Prudential, retirees are already giving an average of £4,000 to family members each year. Can you afford to add to your current generosity if needed, or would their financial protection be a relief for you as well as them?
1. A financial buffer
This is an accessible fund which you can use to cover your short-term living expenses, if something should go wrong financially. Ideally, this should cover your living costs for up to six months. How much you have on-hand is up to you, but remember to account for both:
- Essential expenditure, such as bills and mortgage payments
- Incidental expenses, such as school trips, car or building repairs
The last thing you need is to be unable to afford to fix an essential part of your daily routine at an already stressful and emotionally-charged time.
When building this buffer, you will need to think about where you keep it. Your fund should be kept in a place where it can benefit from some growth, whilst being easily accessible when needed. This could be in an ISA or personal savings account. Shop around to find the best interest rate and account type to suit you.
2. Insurance
Knowing that there is a safety net in place, which will cover the short-term costs should the worst happen, brings comfort and peace-of-mind to many people. However, that emergency fund is not going to last forever. In fact, it is best viewed as a bridge to cover the immediate effects of whatever situation has caused the blow to the household finances until a more permanent solution is found.
Insurance offers more longevity and is essential for anyone with monthly bills and mortgage payments which their family would struggle to cover, should their income be taken away.
The types of insurance to consider include:
Life Insurance: This will pay a lump sum to your family, should you die within the time the policy covers.
Critical Illness Cover: This is designed to pay a lump sum, or income to you and your family, should you be unable to work after a serious diagnosis which is covered by the policy.
Income Protection: This type of insurance replaces a portion of your normal income, should you be unable to work due to illness or injury.
For most people, a combination of these insurances will provide enough cover to solve any financial issues which may arise from the sudden loss of an income. Note however, that Life Assurance plans typically have no cash in value at any time and cover will cease at the end of term. If premiums stop, then cover will lapse.
3. Talk to a professional
Engaging with a financial adviser or planner will enable you to lay all your cards on the table and may even result in you discovering things about your financial position that you hadn’t previously realised.
A financial professional will be able to investigate your current position and suggest the best solutions and strategies to keep your family afloat financially throughout the ups and downs of life.
Talking to a financial planner or adviser will enable you to be more confident when making financial decisions, give you peace-of-mind that your family is protected financially and enhance your financial wellbeing.
To get started, please feel free to contact us.
