A financial shock can happen at any point in your life. You probably will experience several in a lifetime, the question is not if it will happen but are you ready for them when they do?
Knowing what they potentially could be and how we prepare for them is what we want to do today. We believe planning them out is just simply a better strategy than being reactive when one occurs. Simple!
Well financial shocks can come at you in numerous different ways, but they really boil down to, in our opinion, three categories which are listed below.
- ·Loss of Income
- ·Loss of a family member
- ·Loss of an Asset
Let us get into some more of the detail, shall we?
Loss of Income
Loss of Income is your BIGGEST and most obvious risk to ensure a financial shock in your life of some kind.
A loss of Income can happen in numerous ways, such as losing your job due to a pandemic or being off sick and not being able to return to work. (Most common reasons for being off sick for a long time from your work is broken bones or some kind of mental illness)
So how long does your work pay you for before you receive statutory sick pay?
How much do you receive with SSP, SSP Calculator
Statutory sick pays kick in for most people 12 weeks (3 Months) since the first day they take off.
No one can live of statutory sick pay comfortably, so if you are off more than 3 months sick, how long would your savings last?
According to insurance giant Legal and General the average is two months from a survey they completed.
That means in two months’ time people are either selling assets or chapping at the door of the bank of mum and dad! Scary Stuff!
So how do you hedge against this? What steps can you take to ensure that this does not happen to you?
Well, the first step would be to save up an amount of money in what we shall name our emergency account.
An emergency account is an amount of money (Normally 6-12 months of expenditure) saved away in a normal bank account. Never to be touched or invested, unless that is right you have guessed it “for an emergency” purpose only.
That could be losing your job or an unexpected big expense like,
So, grab your bank statements work out what is your normal expenditure per month and ask yourself if you have that amount x 6 or x 12 tucked away?
If not, then a plan to save that amount needs to be constructed. Organising an emergency account does not have to be in lace in year 1. It can also be built over a long period of time like 2 years or even 3.
It does not really matter just as long as you are saving to ensure that you have this potential financial shock covered.
Another way of protecting against losing your income, is to take out an income protection policy or critical illness cover OR Both.
Income Protection will allow you to protect the difference between your current income and Statutory sick pay. This ensures that your income will not falter reduce in any way, Income protection can also be claimed for several years. In fact, the average claim is around 3 years.
Critical Illness on the other hand is useful for times where you might find yourself terminally ill.
Normally a tax-free lump sum is paid out in most cases at diagnose stage allowing you to do all the precious things you would like to do without worrying about going back to work or a yearly income.
Using either type of policy to protect your income is costly but it is one cost that you will thank your past self for if you ever need t use it.
Speak to one of our protection specialist today to see what policy suits you and your family better, Contact Us
Loss of a family member
No other financial shock will be harder felt than this one. Losing a family member is a tragic experience, that we will all inevitably face in our lives.
Some members of our family are the sole bread winners of the household and therefore their loss will not only be one of solely emotional but also a financial one too.
So how can you protect the inevitable, financially?
Life Insurance is a financial instrument that people have commonly heard of and for this financial shock as it “protects” the finances of the loved ones left behind.
The finances to think about covering here would be.
- ·Any mortgage or outstanding debts
- ·The costs of funeral
These two things are the most common things that people look to cover when choosing life insurance, but a common gap left here is what about cover for the income lost.
Paying off a mortgage does not mean the survivor can still pay all the bills especially if the survivor is not the bread winner.
This means that taking out a life insurance product such as Family Income Benefit which would pay out an income to help the surviving member pay the bills and raise any kids without having to sell the asset/property to do so.
Again, please speak to one of our insurance protection specialists for more detail around reviewing your insurance gaps.
Loss of an asset
A loss of asset can be dramatic especially on your finances if it relied on too much. A loss of asset could be a property being repossessed or an investment gone wrong.
Avoid bad investments by ensuring you take professional advice as the liability on the advice will lie with the adviser and not you. You need to check that your advisor is qualified to give advice and you can check on this website to do so Home (fca.org.uk)
Also, when investing always ensure you have a diversified portfolio. This will ensure that your assets are not correlated (Move in the same direction).
Finally, when it comes to investing, try and always invest into assets that are in the UK. Stay away from offshore investments.
Investing in the UK especially regulated investments gives you a layer of protection against any miss selling and also against any provider going insolvent.
Having an asset repossessed is another matter and can occur in the UK. If your asset is leveraged at all through a short-term loan or a long-term loan like a mortgage it would be appropriate to take out the reave insurance to cover the payments.
Again, if you are not sure please do speak with one of our specialists who can help.
Our contact details can be found here Contact Details