THE FINANCIAL CONSEQUENCES OF LONG TERM ILLNESS OR INJURY
Are you prepared?
Being off work for a long time can drain your family's savings and jeopardize your financial security. When you're ill or injured, you may not only lose your ability to earn a living, you could also lose your savings, your retirement funds and even your home.
Many bankruptcies and mortgage foreclosures are due to disability.
If you were off work for a long period of time, how long would you be able to pay your bills? Could you pay your rent or mortgage, make your car loan payment, or pay the minimum to keep your credit card providers happy?
According to a recent Financial Services Authority report - Financial Capability in the UK: Establishing a Baseline
- Four million people say they always run out of money at the end of the week or month
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Fourteen million adults (35%) are relying on their overdrafts to get by each month
- Three and a half million people are permanently overdrawn, while two million workers start the month in their overdraft, even after they have been paid
Most people don’t like thinking about the effects of serious illness or injury. We all lead busy lives and planning how we will cope without income may not seem a priority. It may not be glamorous but it is essential; by not considering how you would manage without regular income you may expose yourself and your family to major risk.
The housing charity Shelter fears the problem could be more difficult now because there is no longer any meaningful State safety net for those who cannot afford their mortgages because of unemployment or sickness. (This is Money, 30.10.07)
Planning ahead in case illness or injury strikes makes good sense. Building a personal financial security plan can help you get an idea of the financial hardship loss of income may cause you and your family. It can also help you better prepare for the unthinkable.
Q: Will your employer continue to pay your salary if you are ill or injured?
A: Few employers will pay salaries for more than a few weeks or maybe months to a sick or injured employee. If you are not sure what your employer provides, ask.
Q: Can you survive on state benefits?
A: Long term incapacity benefit is £84.50 per week, should you qualify. Few can maintain anything like their current living standard on such an income level. For more details click here.
Q: Does your spouse or partner earn enough to pay all the bills?
A: It may be that your partner has enough income for the two of you – assuming, of course that he or she is willing to support you long term – but for how long can this be sustained?
Q: Do you or your family have enough savings to maintain your lifestyle long term?
A: If so, you are one of the very fortunate few. Remember, you will only get about 5% per annum of income from your savings without risk. Again, ask yourself for how long you could support yourself in this way and, if you had to use your savings if you were ill, how would this affect your future plans?
Q: Do you have insurance that will support you financially in these circumstances?
A: If you have mortgage payment protection insurance, you may only be entitled to one or two years payments.
If you have critical illness insurance, you will only receive payment for certain health conditions.
If you have income protection insurance, this can provide the support you are looking for.
If you are in any doubt, you should see a financial adviser without delay to make arrangements for your financial security in the event of illness or injury.
How long can you manage to pay the bills from your savings?
"In a survey conducted for the Yorkshire Building Society in June 2008* amongst a representative sample of adults in the UK, their average weekly expenditure was found to be £333.56. This comprised:
£215.55 Essentials (e.g. food, accommodation, utilities)
£ 73.61 Debt repayment
£ 44.40 Luxuries
Average savings were £2,474. Thus for an average person qualifying for State benefit (Employment and Support Allowance) of £84.50 per week in the event of being unable to work through ill-health, even cancelling all spending on luxuries would leave a shortfall of £204.66 per week and their savings would fund that shortfall for just 12 weeks."
To read the Yorkshire Building Society Survey, "The Protection Gap : How the UK is Living on the Edge, July 2008", click here.