Have You Got A Money Umbrella? Because It's Going To Rain
The COVID pandemic has shone a light on the fact that many people are financially exposed and vulnerable to money-related shocks. Research by the national debt charity Stepchange has found that the leading causes of people getting into debt in 2020 were:
14% - Lack of control over finances
15% - Reduced income or benefits
18% - Unemployment or redundancy
21% - COVID, injury or health-related
If health is the biggest cause of people falling into debt then that suggests that state benefits are not adequate.
State sick benefits are low
The pandemic has caused millions of people to claim state financial support for the first time due to a reduction in their income.
Temporary COVID-related income support like the furlough and self-employed support schemes have been a lifesaver for millions of families. But claimants might be surprised at how low standard state benefits are when you are sick or disabled.
While researching state sickness benefits, I was amazed that no one had ever created a simple visual summary to clarify what was available. So I decided to design one myself, which is below.
SSP - Statutory Sick Pay payable to all employees but NOT self-employed
ESA - New style Employment Support Allowance paid to employees after SSP ceases or from date of the claim for self-employed not entitled to SSP
PIP - Personal Independence Payments paid after 13 weeks inability to work based on the severity of sickness or disability.
UC - Universal credit payable based on your household's overall financial position, including the income and savings of your partner. A reduced benefit is payable if you have savings between £6,000 - £16,000, and no benefit is payable if your savings are over £16,000.
You might be entitled to other payments if you have a disabled child or care for an elderly relative. And many local authorities provide grants and reductions in council tax, but this is a bit of a postcode lottery and fraught with difficulty to meet the eligibility criteria.
Robert's story
My uncle Robert was a fit and active ex-serviceman who went on to run his own newsagent shop. He developed Multiple Sclerosis (MS) in his early 40s, and within five years, he could no longer work.
He had a small army pension and some state benefits, but he still found it hard to meet his living costs and so had to move back in with his elderly parents. Stress exacerbates MS, and the constant financial struggle Robert experienced caused him a lot of stress and that worsened his MS. This went on for 15 years before he died in his late 50s.
You need a financial umbrella
State benefits, while helpful, aren't going to give most people the dignity and support that they will need if they are unable to work due to sickness or disability, particularly if this is over the long term.
The two essential things you need to have in place are an emergency fund and income protection insurance.
Even £1,000 in an emergency fund would help. But ideally, it needs to be between three to six months' core living costs.
Then you need income protection insurance which kicks in after your emergency fund has been exhausted.
“State benefits, while helpful, aren't going to give most people the dignity and support that they will need if they are unable to work due to sickness or disability, particularly if this is over the long term.” Tweet This
A typical income protection insurance policy will cost less than a standard mobile phone contract. But it could potentially pay you an income until you are in your 60s if you can never work again.
My good friends at Cura Insurance can help you select the right level of cover and arrange a competitive policy. Just click here.*
It's going to rain one day. It's a case of if, not when. So make sure you get your financial umbrella in place now. Get enough in your emergency fund and contact Cura Insurance to get a quote for income protection.
Do that while the sun is shining, and you'll worry less and be able to live more.
*Please note that if you buy income protection from Cura they will pay my business a small fee but this makes no difference to the premium you pay. We use any income to help keep this educational content free. I chose Cura because I have a lot of trust and confidence that they will give good advice and great service.