If your income were to suddenly stop, how long would you be able to continue your lifestyle, how long would your savings last for?

It’s not something anyone wants to think about, but the truth is, people lose their income every day, ranging from illness, being involved in an accident to facing redundancy. Understanding how you’ll get by should something happen, can put you in a better position financially, and reduce the stress experienced if you’re affected.

We often think ‘it won’t happen to me’. But official figures show that more than a million workers are off work for more than a month, every year. Do you have a capacity to cover a month’s worth of outgoings without it impacting your lifestyle? Research from Royal London found that more than half of workers would worry about their income should they be unable to work for an extended period of time.

Building an emergency fund

One of the best places to start when taking steps to improve your financial security is to start building up an emergency fund, if you haven’t already done so.

It’s recommended to have between three and six-months’ income readily accessible should you experience a financial shock, from an unexpected bill to losing your income. This gives you a financial buffer and peace of mind too; should something happen, you’ll know your bills and other financial responsibilities will be taken care of.

While several months salary can seem like a big step initially, even putting relatively small sums away each month means the safety net will quickly grow.

When searching for a home for the emergency fund, make sure it’s accessible. Of course, an account that will generate as much interest on this sum as possible is attractive, but be sure your money isn’t tied up for a defined period of time before making a decision.

Check your sick pay entitlement

Check your employer’s sick pay policy. These vary significantly and some firms don’t offer sick pay at all. Understanding what you’ll be entitled to if you were unable to work due to illness or injury puts you in a better position to plan and make further deposits to your emergency fund if necessary.

Statutory Sick Pay (SSP) covers most employees, however, some are excluded, and is paid by the government if you’re off work for a minimum of four consecutive days. It will pay out for up to 28 weeks, but at just £92.05 per week, it’s likely many will face a shortfall if relying solely on SSP.

Company sick pay policies are often more generous, paying your average wage or, a portion of it each month for a set period of time. It’s a benefit that can give you peace of mind and security should something happen.

However, not everyone will be entitled to company sick pay. If your employer doesn’t, you will need to rely on SSP and your own provisions. Your entitlement should be included in your contract. If you have any questions about the amount of money you’d receive and how long sick pay would be paid for, it’s best to speak to your employer directly.

Consider protection products

Finally, protection products can be used to provide further security should something happen. These are policies that will pay out in certain sets of circumstances. Before you start to look at protection products, there are some important things to think about.

First, is the type of protection product you want. This will depend on your circumstances and priorities, in some cases, you may want to take out multiple products or one that covers a range of areas. Critical illness cover, for example, will pay out a lump sum if you, or those covered by the policy, are diagnosed with a medical condition that’s named in the policy. Income protection, on the other hand, will usually pay out an income on a monthly basis if you become too ill to work, after a certain period of time. Some policies will continue to pay for a fixed period, such as a year or two, while others will provide income until a maximum age such as 65 or 75.

Second, you’ll want to ensure the protection dovetails with the sick pay you’ll receive, as there will typically be a deferred period. If, for example, your company will pay your full salary for six months should you fall ill, ideally, you’ll want a protection policy that will have a six-month deferment period. This allows you to reduce the premiums paid as much as possible.

If you’d like to discuss your financial situation and the steps you can take to improve short, medium and long-term security, please contact us.