What's your deadline to the breadline?
(Wealthy) people always say that you should have at least three months income saved in an easily accessible place to cover your backside in case you suddenly lose your income. In the real world, most people do not necessarily have the means to build up that level of savings. But how long could you last if your income disappeared overnight owing to illness, injury or redundancy?
A new calculator tool has been launched which helps you calculate just that, your own personal “deadline to the breadline”. Of course, as there is an insurance company behind it, they are obviously trying to peddle accident, illness or redundancy and life cover. However, their research does show that the average breadline deadline is just 18 days. Scary stuff.
The online calculator can be found here and asks you how much you spend every month, your savings and assumes you lose your income owing to ill health, and will be entitled to State Benefits such as incapacity benefit or employment support allowance (dole) in full once your income stops. Remember though that full and immediate entitlement relies on a minimum level of national insurance contributions- if you normally work and suddenly find yourself out of work this is a fair assumption; if your work history is patchy at best, you may only be entitled to income-dependent benefits which may be lower. You can also input other receipts such as child benefit, insurance policies, work-related benefits or non-earned income.
The calculator then gives you your result, which is presumably designed to terrify you into spending on a new protection policy. But even if you aren’t in the market for insurance, the calculator might help you think about what you would do in that situation, and what protection you may already have.
While many of us can’t afford to put money aside, if you can do so, a small savings pot would go a long way if income was no longer coming in. Although bank deposit rates are tragic at the moment, saving in a tax free cash ISA, even at a low rate, would protect any pitiful interest from the taxman. They say you don’t miss what you don’t have, so directing small income amounts like child benefit to be paid straight into a savings account could save £1,000 a year for one child.
You many already have life insurance that pays out in case of your untimely death. If you have a mortgage, some mortgage companies require an insurance policy to run for the mortgage term to ensure that your mortgage would be paid off. Additionally, many employers offer life cover to their employees as standard, or if not, if you are a member of a company pension scheme, there is normally a life insurance element included there too. Check your employment or pension documents.
Finally, critical illness policies are expensive, but many pay out on diagnosis of a serious illness, not just on terminal cases. If you are diagnosed with a treatable illness, like breast cancer, you could be comfortably off afterwards, while enjoying a normal life health-wise. Alternatively, if it would be important for you to be able to do that bucket list before you die, a critical illness policy, rather than a life insurance policy payable on death, would allow you the freedom to do this.