Have you made sure your plans are still on track?
It’s been nearly two years since the first novel coronavirus (COVID-19) case was detected. The economic impact of the pandemic has not been equally distributed amongst all adults and where inequalities existed before the pandemic these may have been widened or closed.
The pandemic has caused a drop in household income for around a third of all UK adults according to a Financial Conduct Authority (FCA) survey.
But what lessons can be drawn about how attitudes towards our personal finances may need to change. You might want to start thinking about even the smallest changes you could make to put yourself in a better financial situation in the future.
Do I have an emergency fund I can access quickly?
While the pandemic is surely not an everyday occurrence, it could happen again and therefore it makes sense to have an emergency fund to cover essential spending for at least three to six months that can be accessed quickly.
If you have money set aside for emergencies, you’re far less likely to experience financial difficulties or have to borrow at a high interest rate if things go wrong or your circumstances change. The impact of COVID-19 surprised everyone, and it’s definitely been a very challenging time financially for many families.
If you already have an emergency fund in place and you’re able to still contribute, you might consider continuing to put money into it to give yourself a financial cushion in light of these uncertain times.
But if you don’t have an emergency fund to fall back on, now the time to start building one. Knowing you’ve got some money tucked away might help you sleep better at night too.
Do I have life insurance cover alongside my death in service?
In the future what if your employer releases you as part of the layoffs forced by something like the COVID-19 pandemic. If you have death in service benefit from your employer, it’s understandable to question whether you really need a separate life insurance policy.
However, it’s generally a good idea to have life insurance cover alongside your death in service benefit. For example, even if you have a generous employer, the payout from the death in service cover may not be enough to pay off your mortgage in its entirety. And even if it does, it may leave your loved ones with only a small amount left over to cover the various other costs they will have to deal with after you have passed away, from your funeral to getting by without your regular income.
There’s also the fact that very few of us stay in the same job for our entire working lives. So while you may have a generous scheme in place currently, you could move to a new job with a better salary but which has smaller death in service protection, or even, no cover at all.
Having a dedicated life insurance policy protects you against that variance, ensuring that your loved ones are financially protected in all eventualities should you pass away. Any death in service payout can then be viewed as a bonus.
Am I covered for loss of income if I’m unable to work?
This is one of the first questions I ask any client as for me it is the most important aspect of financial planning, especially if you are self employed.
Virtually every person in the UK will have some form of insurance, whether it’s their car, their phone, contents of their house or pets. According to research from insurer LV=, only 4% of self employed had income protection in place in 2017.
When advising on Income Protection I describe the value of earning as having a machine in the shed at the end of your garden that prints off money each month, without fail. I would then ask “is this something you would look to insure” quite often the answer is “ well yes, I would”.
Regardless of your age, health, level of financial independence or homeowner status, you are most likely to have some form of regular financial outgoings.
You might need income protection insurance if you are self-employed, are employed but your employer offers limited sickness benefits, have limited savings, have dependants or people relying on your income or you are single and responsible for all household expenses
Income protection insurance provides a monthly replacement income, tax-free, if you are forced to stop work for a specified medical reason. It can pay out for stress-related or mental health illnesses, as well as physical or sudden health conditions such as back pain, cancer or a stroke.
Income protection gives you the peace of mind that your bills will be paid if you are off work due to illness or injury. Typically you are covered until retirement or returning to work, depending on the policy taken out.
Most people in the UK are eligible for up to 28 weeks’ statutory sick pay, funded by the government, if they are too ill to work. But this is currently only £96.35 a week (tax year 2021/22), which is why some form of personal insurance could be needed.