The beginning of the year is an ideal time to carry out a financial review. It provides an opportunity to reassess your wealth strategy, consider any changes that have happened, and ensure you’re as tax-efficient as possible.
That said, there is one part of a review that is all too often overlooked: the impact that being diagnosed with an illness could have on your wealth. According to the Independent, Macmillan Cancer Support suggests 83% of people with cancer are an average of £891 a month worse off because of additional living expenses or loss of income.
This could cause a financial headache when you need it least. The good news is that you may be able to ensure you receive an adequate income if you’re diagnosed with an illness.
Read on to discover how you could safeguard your income, lifestyle and retirement. Before we do that, let’s look at what could happen to your finances if you’re diagnosed with an illness.
Statutory Sick Pay (SSP) is unlikely to support you and your family
Employers are not obliged to pay sick pay and, when they do, it’s typically for three to six months, after which it’s likely to stop or be reduced dramatically.
The worst-case scenario could be that your employer stops paying your salary after just a month.
Once your salary stops, you’ll probably need to live off your savings if you don’t have another source of income. While you could be entitled to Statutory Sick Pay (SSP), in 2021/22 it’s £96.35 a week for 28 weeks.
This is unlikely to maintain your lifestyle, especially if you face additional expenses due to your illness.
Income protection could be a wise investment
While you may be fit and healthy as you read this blog, the Covid pandemic shows we don’t know what tomorrow holds. This is perhaps echoed by Cancer Research UK, which revealed that one in two people will develop cancer at some point in their lives.
If this were to happen, having income protection in place could be invaluable, as it typically pays a tax-free income every month. This could help you maintain your standard of living and meet your financial commitments, such as mortgage repayments and pension contributions.
While the amount you receive depends on your salary and the terms of your cover, it’s typically around 60% of your regular income and continues until you return to work, retire or the cover ends.
The cost of income protection is determined by:
- Your age
- Your medical record
- Your family’s medical history
- How risky your job is
- How much income you would like.
Please remember, you’re unlikely to be covered for pre-existing conditions.
More often than not, the cover pays out after a deferred period. This is the period between stopping work and you receiving the cover. The longer the period, the lower the monthly premiums are likely to be.
A good strategy is to have a deferred period that dovetails into your company sick pay to provide continuous income.
Critical illness cover might also be worth considering
Critical illness cover (CIC) pays a tax-free lump sum if you’re diagnosed with, or need treatment for, a serious illness. The illnesses you would be covered for will depend on the protection you take, although typically CIC pays out if you have cancer, a heart attack or a stroke.
The money could pay for private medical treatment, or medication not available on the NHS. Alternatively, it could repay debts, modify your home if necessary, or provide an income.
As with income protection, the cost of the premiums will again depend on factors including your age, medical history and risk associated with your job.
Both types of cover could provide peace of mind
Income protection or CIC provides peace of mind that, if you’re diagnosed with a serious illness, you’ll be able to cope financially. This could reduce stress, which may help you recover more quickly.
You may also want to consider having both as part of your financial strategy. Having the income could allow you to meet your overheads, while a lump sum could also pay for treatment that could speed up your recovery.
Get in touch
If you intend to carry out a financial review and would like to discuss protection, speaking to a financial planner could help. They can ensure you receive cover that’s right for you and that it’s as cost-effective as possible.
If you would like the reassurance of knowing you could maintain your and your family’s lifestyle both now and in the future, please contact us at hello@ardentuk.com or call 01904 655 330.
As award-winning specialists in financial planning, we’ll create a financial strategy that helps you meet your long-term goals. Working together with you, we’ll provide options that could help you look forward to a brighter future and give you peace of mind that you’re financially secure.
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
