Are you prepared enough to cope with a financial shock?

Category: News

A recent Money Marketing report claims Britons’ lack of financial foresight leaves us ‘worryingly exposed’ to a financial shock.

The survey of 2,000 UK adults scored respondents out of 25 in several categories. ‘Protecting against the unexpected’ scored just three, while ‘Planning for the Future’ achieved only a slightly better score of five out of twenty-five.

Receiving expert financial advice means putting a plan in place for the future. This plan can provide confidence and a sense of control, as well as enormous peace of mind that you and your loved ones will be looked after, should the unexpected happen.

These survey results are also backed up elsewhere. Comparison site Finder, recently confirmed that only 50% of households with mortgages have life insurance. Cirencester Friendly reported earlier in the year that a third of UK employees would take out pet insurance, but just 17% had considered Income Protection.

So, what can you do now to put yourself and your family in a better position to withstand a financial shock? And how can financial advice help?

1. Put an emergency fund in place

The first thing you should do is ensure you have an emergency fund set aside. Ideally, this should total between three to six months of your household living expenses.

If there was a sudden loss of household income, through accident, illness, or redundancy, for example, you’ll have liquid assets that you can access quickly, to cover regular outgoings or help towards the unexpected cost, without the need to accrue debt.

2. Take out Income Protection

If you have dependents relying on a regular income from your employment, a sudden end to that income could have serious consequences.

Consider taking out Income Protection. It generally covers most illnesses that could prevent you from working and will pay out (after a deferred period) until you start working again. You can claim multiple times during the policy term, subject to certain exclusions.

With Income Protection in place, even if illness or accident prevent you from working, you’ll still receive a percentage of your normal income, giving you peace of mind that your household bills and other regular outgoings are covered.

3. Take out Critical Illness Cover

Unlike Income Protection, Critical Illness cover is more likely to pay out a one-off lump sum, but it will only do so once.

It pays out when you are diagnosed with certain conditions set out in the policy, such as a stroke, heart attack, and certain cancers.

Multiple sclerosis, organ transplants, Parkinson’s disease, and other conditions could be covered too, so check the policy documents carefully and speak to us before taking out a plan so we can help to ensure you have the right cover.

A Critical Illness payout can be used as you see fit, but will typically help towards things like the cost of medical treatment or adaptations to your home.

Financial advice doesn’t just stop once you’ve taken out a policy. Back in March, we wrote about How our in-depth fact-finds led to life-changing critical illness payouts. Find out how our expert financial advisors could do the same for you.

4. Take out Term Assurance

Term Assurance will pay out a specified sum assured if you die within the policy term. Take out a policy with a 20-year term and a £100,000 of cover and the policy will pay that amount if you die at any point during the term.

You might set the end of the term to coincide with paying off your mortgage, giving you peace of mind that your property will be paid for should the worst happen. Remember though that once the term ends there is no cover and nothing to pay on death.

Decreasing Term Assurance is a type of term assurance, but one where the sum assured reduces over time. This can make the policies cheaper because the closer you get to the end of the term, the less the policy would have to pay out.

This could be perfect for paying off a reducing debt, where the amount you’d need reduces over time.

5. Take out Whole of Life cover

Whole of Life plans guarantee to pay out when you die (providing premiums are up to date) and this can make them expensive.

Your provider will usually guarantee a premium amount for a set number of years, after which time your plan will become reviewable. At each review, our provider will recalculate the level of premium payable, and you could find that the cost of premiums increases significantly.

If you know that your estate will be liable to Inheritance Tax, you might consider using a Whole of Life plan to cover the liability. Speak to us for financial advice before you take out cover and we can ensure you have the right policy.

Financial Advice and emotional wellbeing

Royal London recently published a report into the non-financial benefits of seeking financial advice – what it calls ‘emotional wellbeing.’

It found that if you receive regular financial advice, you can expect to feel an improvement in your emotional wellbeing in three key areas:

  • Improved confidence in your financial plan
  • More control over your financial future
  • Peace of mind

Protection policies can help with all three, enabling you to live your desired lifestyle now, knowing that whatever later life throws at you, you and your family are protected.

Get in touch

If you’d like to discuss any element of protection or how your financial plan could be improved to withstand a financial shock, get in touch. Please email or call 020 8891 0711.