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Are you financially prepared?

Are you financially prepared?

Category: Income protection

Updated: 06/07/2016
First Published: 06/07/2016

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 It is now over 6 months old so the content may be out of date.

Long-term ill health is never a nice thing to contemplate, but if you fail to be prepared for such a scenario, you could be putting your finances in serious jeopardy, with research from Zurich finding that far too few people have suitable protection in place.

The survey found that just one in five UK respondents has income protection insurance that would offer financial cover if they were too ill or disabled to work, despite the fact that 42% have already experienced income loss in their working lives as a result of a serious illness.

"It won't happen to me"

Unfortunately, the results seem to indicate that many people choose to stick their head in the sand when it comes to this kind of thing, believing that it simply won't happen to them – even though many have already suffered the consequences of long-term illness first-hand.

However, a lack of awareness could also be playing a part, with only 19% of respondents claiming to have a good knowledge of protection products. This suggests that more needs to be done to raise awareness of the benefits of such products, the report noted, which can include swift access to rehabilitation as well as the obvious financial support, but there are also signs that people misunderstand the costs involved.

Indeed, many overestimate how much income protection cover costs – over a quarter said they'd be willing to spend 5% of their income on such cover, yet it can actually cost far less. This could easily mean that many people overlook this form of cover out of fear that it's too expensive, and will instead rely on other forms of financial support to cover them during such an unexpected time, but this in itself can be a big mistake.

For example, 47% of respondents said they'd rely on savings should the worst happen, yet 23% said that their savings pot would only last them for a month, while 21% felt they had enough to last them up to three months. But would that be sufficient? There's simply no telling how much time you'd be away from work should a serious health issue hit, and without suitable financial support, it could quickly become difficult to cover the necessary outgoings.

Don't expect to rely on the state or your employer, either. The benefit system is already being stretched and your employer may be unable to offer suitable support, so although 56% of respondents would like the Government to cover income loss in the event of illness, and 37% thought that their employer should pick up the tab, this is highly unlikely.

A particularly telling finding was the fact that 47% of UK respondents would be willing to accept a better benefits package, including income protection benefits, rather than higher wages, so if it's that important, why not take the plunge and source suitable cover yourself?

"The income protection gap is a growing challenge, for individuals and their families and society as a whole," said Gary Shaughnessy of Zurich. "For a family, we know that the impact of the main breadwinner not being able to work through illness or disability can be devastating, with financial hardship resulting in the loss of the family home for those worst hit… People need to take more responsibility to protect themselves and those they love."

What next?

Don't run the risk of financial hardship – compare income protection products to make sure you're prepared for every eventuality

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