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Households risk being financially unstable

Households risk being financially unstable

Category: Life insurance

Updated: 23/05/2016
First Published: 23/05/2016

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

We all know how important it is to be prepared for a financial emergency, but unfortunately, far too few people are putting that advice into practice. Not only are savings pots woefully limited for many, but a large number of households fail to have any form of income protection in place, and figures from Scottish Widows highlight the pressure many could face as a result.

Lack of a backup plan

The findings reveal that 21% of respondents admit that their household wouldn't be financially secure for any length of time if it unexpectedly lost its main income, such as through long-term illness, but despite this, many continue to bury their head in the sand.

Indeed, 25% said they'd only be able to cover household bills for a maximum of three months, while 26% could only make a maximum of three monthly mortgage payments, and 18% weren't even sure how long they'd be able to cover those payments for. Even so, many respondents fail to have life insurance, critical illness cover or even income protection, with this kind of insurance not viewed as a priority – and in fact, it falls further down the priority list than having access to an internet connection or mobile phone.

So-called essentials

Worryingly, the majority of Brits are far more likely to have internet than life insurance, with 81% of respondents considering an internet connection essential and 72% citing a mobile phone as a necessity. Conversely, just 29% think it's essential to provide financial security for dependents if they become critically ill, and only 40% thought it was essential to have life cover.

In fact, 36% admitted that they'd resort to dipping into their savings if they encountered a financial emergency and the main breadwinner was unable to work, with only 32% having life insurance and just 9% having critical illness cover. This lack of concern about long-term finances can be further highlighted with the finding that 12% would actually cut back on life insurance if they had to reduce their outgoings, while 13% would do the same to their critical illness cover – yet only 9% would cut back on internet access.

Johnny Timpson, protection specialist at Scottish Widows, commented: "While none of us ever want to think about the worst, our findings show that there are an alarming number of families who could face a significant financial struggle in the event of an unexpected loss of income due to serious illness or death. No matter what our personal circumstances, it is vital for all of us to ensure we have an appropriate plan in place to protect our finances, helping avoid the need to dip into our savings, which could present even greater challenges further down the line."

What next?

Life insurance or critical illness cover may seem like an unnecessary and often expensive outlay, but it could help far more than an internet connection in the event of financial fallout. It needn't cost a fortune either – use our insurance comparison tools to find the policies you need at a price you can afford.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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