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Create a safety net for your largest asset

What would you say if you were asked to name your largest family asset? Most people would say it’s their home or business. Some would say their investments or their car. Maybe some would even say their expensive plasma TV screen or their jewellery. However, in the majority of cases, the largest family asset is not an asset in the traditional sense, but your ability to earn an income.

Everyone insures their car, and most people insure their home, but how many people insure their future earnings? If you are a parent, in a long-term relationship or have a mortgage or other debt, protecting your future earnings and ensuring the continued support of your family and lifestyle is an essential part of a solid financial plan.

Yet research from AXA shows a worrying trend of people not providing themselves and their families with a safety net should the worst happen.

A worrying trend

Results from their survey show that nearly half (45%) of adults in the UK have no life insurance, critical illness cover or income protection in place whatsoever to protect them and their families in the event of losing their income through health issues or even death.

Only a third of the UK population believe they have the financial provisions in place to cover their mortgage should their income stop. Almost half the population (49%) have less than £1000 in current savings and investments, leaving them at risk of serious financial shortfalls if illness or disability meant they were unable to work for a period of time.

Little or no savings

Three-quarters of all adults (72%) save less than £100 a month and half of these save nothing for the longer term. Yet the average annual household expenditure is around £450 a month, leaving millions with only enough to survive for less than a month if the worst should happen.

Despite this, people still expect they will have to cover additional costs in the future such as funeral costs (62%), children’s education (42%) and caring for parents (40%). However, AXA believe that many of these costs are rising more rapidly than inflation and will potentially cost tens of thousands of pounds.

Financial consequences

When finances are tight it is often responsibilities like protection policies that fall to a lower priority, and of course these policies protect outcomes that most people don’t want to think about. But it is essential to consider the financial implications of what would happen if you were unable to work, or your dependents’ situation if you died. For most people, the financial consequences would be far worse than any concerns they currently have over struggling to meet their outgoings.

The current climate

Not surprisingly in the current climate, people are reluctant to invest in protection products when left to their own devices, with only 10% prepared to commit to income protection cover, 5% to critical illness and 7% to life insurance.

Iain Mallon, Head of Protection at AXA, said: “Financial provision is generally seen as rather dull and low priority. But every year thousands of families are financially affected by the loss of income from a breadwinner. In the current economic climate this is only going to get worse.”

No Plan B

In the UK, the government will provide support for those off work for long periods or unable to work again through illness or disability. Yet even with this State support, without additional provision, hundreds of thousands of families could be heading for financial disaster with no “Plan B” in place. For example, state incapacity benefit or statutory sick pay provides for less than £400 a month whereas we have already seen that the average household expenditure is £450 a week. Around £48.10 per week is spent just on food and drink (non-alcoholic).

So while there is comfort in knowing that the State will provide something, will this be enough? Part of providing a safety net for your family should be to find out what you are entitled to should your current financial state change, and www.adviceguide.org.uk has all the information you will need.

Seek professional advice

Also of concern is that a worrying number of people simply don’t know what circumstances life insurance, critical illness cover and income protection cover, or whether these are provided by their employer or not.

If you are unsure what types of protection you have in place either privately or with your employers, or the levels of payout you could expect and under what circumstances a claim could be made, it is essential to take professional advice, if only to ensure that you and your dependents have the right cover for your needs before it is too late.

Seek professional advice

Sadly, it’s clear that should the unexpected happen, few of us have enough cover in place to see us through an extended period of illness. Although we may believe that we could muddle through, it is not enough these days to rely on the State, family or friends. In reality, the only person able to build a sufficiently strong safety net is you. Allow us to conduct a review so that we can look together towards protecting your largest family asset - your future income.

This article was taken from Seneca Reid's Summer 2010 newsletter.

Seneca Reid Ltd is an appointed representative of Openwork Limited which is authorised and regulated by the Financial Services Authority.

The information on this website is for the use of residents of the United Kingdom only. No representations are made as to whether the information is applicable or available in any other country which may have access to it.

Openwork Limited offers insurance and investment advice on products from a limited number of product providers and advice on mortgages representative of the whole market.