People have never had a better time to manage their money and take control of their finances in recent years. Families are most concerned about the unstable and unpredictable global economy. The sharp decline in household incomes in the UK and the uncertain employment patterns pose the greatest threat to their financial security. It is essential that families have financial security and financial protection to meet their daily needs, as well as for the unexpected.
This is also accompanied by a shift in the nature and function of the welfare state’s traditional functions. The Government has made progress in its reforms to encourage work and personal responsibility. To provide financial security for their family and themselves, it is only natural that the individual will have to take more responsibility.
The UK Government is concerned that people without enough money to pay their bills in these times of high unemployment could become a burden to the State or even commit crime. Anybody who is looking for work or a job must have some income to support themselves until they can earn again. The same goes for those who are ‘breadwinners’ but can’t work due to a long-term injury or serious medical condition. This could quickly lead to financial hardship for their families and themselves. As State Benefits become less accessible and more difficult to get, it is becoming increasingly important for women and men, particularly those with families to be able to safeguard themselves against financial shocks.
In response, the Government established an independent steering committee chaired Carol Sergeant. The interim report was published by the group this year. It explains how consumers can better interact with complex financial services markets. It identified a segment of the UK population that is at high risk but has the resources to avoid financial shocks. These are people with a minimum of three months’ income and some savings. They typically have a median income PS21,788, which is PS5,447 for a median three-month savings. This is equivalent to 6.9 million households in the UK or 14.1 millions adults.
Financial disaster would ensue if any of these 14.1million adults were to have a medical issue and become too sick to work. They would also face financial ruin if they had only three months of their wages left and couldn’t get back to work for six months or more (six to eight month unemployment is the average).
Long-term illness or disability that stops a wage earner from returning to work for many years, if ever, has a much higher incidence of people who are affected. Nearly three quarters of UK households would struggle to survive if their primary income was lost. This report shows that 12.2 million households and 23.5m adults in the UK should have income replacement. Otherwise, they risk falling into poverty.
A simple, straightforward insurance policy is the best solution to short-term financial shocks. This is for those who cannot save much. If the primary breadwinner is unable to work, the number of households affected jumps to more than twelve million. It would almost certainly be a result of a long-term disability or disabling accident, but it wouldn’t be redundancy.
A strategy to appeal to the savvy consumer
A policy that pays out up to one year should be taken out by 14.1 million adults if they become disabled or sick. You can purchase this coverage online for as low as PS20 to PS40 per monthly or through a broker for more. This insurance is also known as Lifestyle Protection Insurance or sort-term Income Protection Insurance. Many policies will pay out if the policyholder must give up their job to care for a family member.
These 14.1 million people, along with 9.4 million more, should all have a long-term income protection policy. This coverage is available mainly through financial advisors and is much cheaper than buying with a 1-year excess (or deferment period, as it is sometimes called).
A one-year Lifestyle Protection Insurance policy would be available to the savvy consumer that includes carer and unemployment coverage. The long-term Income Protect policy will pay for any medical-related disability once the coverage is exhausted.
These are some of the benefits. It allows the individual to rest easy knowing that they will be covered in the event of an emergency. They can also live in the present, taking a vacation, purchasing gifts for their children, and covering all of their expenses. Building up personal savings would require them to save every penny they earn. It would be much easier to find PS50 per month to cover both types of policies. This is comparable to the monthly cost of a satellite TV subscription, smoking, or a single top-up at the petrol pumps.
