Finance Blog: Neston & Beyond: If You Become A 'Have Not'
|Published: 20th June 2014 17:03|
20th June 2014.
In the week that we learn the Chancellor has trousered an extra billion pounds on the back of the housing boom, just from stamp duty alone, not to mention the additional inheritance tax which will be many more billions, we learn that at long last, the Bank of England has been given the right to impose mortgage lending controls. This is part of an effort to control house price inflation and the usual boom & bust cycle. There are many colleagues & I that have been calling for this for years, but at least it is now in place. The downside though, is they are not going to use it. Ho hum.
This week's issuance will not be relevant to all, for which I apologise, but is relevant to you if you rely on earned income, or if you are a financial dependant of someone who relies on earned income.
A few rhetorical questions for you.
If you, or the person you rely could not work as a result of illness, what would be the financial impact? Let's say you or they could not work for:
From now until retirement age?
How long would your savings last?
How would you save for retirement?
How would you pay the rent or mortgage, let alone the council tax, utilities & groceries?
I am not necessarily talking about the 'big illnesses' such as cancer, stroke or heart attack. I mean just 'ill' and unable to work. I mean all the things that stop you working that are not on the 'critical list'. This might be a chronic bad back; vision problems, sporting or accidental injury. In fact, 74% of illnesses preventing work are not 'critical'. Thing is, only a small number of us go to work because we want to. We go to work because we have to, and for the majority of working people, all future plans are based on having the ability to earn. Last time I looked up the statistics, around 1 in 5 households reliant on income would be in schtuck immediately, and nearly 50% would be out of savings within 2 months. (Source: Scottish Widows Protection Report 2014.)
There is insurance available, known as Income Protection, and it has many forms and if you know what to look for, it is usually quite affordable, and would replace income, paid to you tax free, for as long as you are unable to work. If you don't know what you are looking for, it appears complex, expensive and difficult to arrange. Perhaps this is why only 7% of households with a mortgage have any Income Protection, yet 50% have life insurance, but the chances of you being ill for 6 months is far higher than the chance you will die before retirement.
The majority of employers only offer statutory sick pay (SSP), which is £87.55 per week, and lasts for 28 weeks. Very few employers offer additional benefits for longer than 6 months, (unless you have long service in the public sector or one of the very largest employers). After the 28 weeks, you have to see if you qualify for Employment Support Allowance' (ESA) which is between £101 & £108 per week. For one insurer, (Aviva), the average length of claim for an Income Protection policy was nine years and five months.
So please ask yourself these questions:
- Are you reliant on earned income, or reliant on someone else's? If 'yes' then;
- Could you live off your savings for the rest of your working life? If 'no' then;
- How long would your savings last? If 'not long' then;
- Would £100 per week pay the rent / mortgage, utilities, groceries, pension provision and all the other costs of living?
If the answer to this last question is no, then you need to look at Income Protection Insurance. There is a link below to the 'Money Advice Service'* web page on this topic, and if you need any help, you know where I am.
Bye for now.
'Money Advice Service' is not an advice service, but an information and sometimes 'guidance' service set up by Government but entirely funded by a mandatory levy on financial advisers and financial services companies.
Disclaimer: 'Neston & Beyond' and similar articles written by me are my personal views and the sole aim is to where possible inform, sometimes amuse, occasionally entertain and hopefully, if all else fails, at least be interesting. In no way can any of what you read here be taken as advice of any form, be it parental, lyrical, electrical, prognosticative, desirable, ichthyological, astronomical, factual, governmental, statistical, financial, legal, marital, occupational, political, philatelogical, sociological, incidental, accidental, fiscal, zoological physical, biological, medical, dental, accidental, haberdasherial, cosmological, or tangential.
John C. Cartlidge
Tel: 0151 336 6610