A recent report by Legal and General reveals that the average 25-44 year old could only live off savings for one week upon losing their income.
The findings show that the average “Deadline to the Breadline” across all groups is only 18 days. The average person in the UK would have less than three weeks before becoming dependent on state benefits, friends and family. The situation slightly worsened since last year when the average was 19 days.
People in the North-East, Yorkshire and the Humber have the shortest deadline of just 7 days whereas people in the west midlands could live off savings for an average of 40 days. The deadline to the breadline increased with age. 45-54 year olds had just over two weeks and 55-64 year olds had just less than 5 weeks.
With disposable incomes falling by nearly 4% compared with the last year savings have suffered as a result. The research showed that while 41% of households would use savings as protection:
- 37% of families have no savings
- 35% of families have no strategy for dealing with a change in income
- 60% of households would not expect their family and friends to help
- The average savings were £660
Younger people were less likely to have savings; only 52% of the 18-24 year old group had any savings at all.
What could go wrong?
Evidence seems to suggest that people are living in denial when it comes to estimating what could go wrong and how they would cope if it did.
1 in 5 people are likely to go on long term sick during their working lives and 1 in 10 people have been off work for more than 6 months (The Guardian/ Unum). 4 in 10 people have been made redundant or suffered from long term ill health during their life (Met Life 2012). Despite this, people estimate their chances of being off sick for six months at 1 in 33 which is much lower than the true figure of 1 in 10 (Health & Protection Insurance Survey 2013).
The Legal & General study found that peoples’ perceptions differed from reality in terms of living off their savings. People estimated that their salary would last 57 days when the average was only a third of this.
Out of the strategies for dealing with a loss of income only 9% of families had mortgage protection insurance and 12% had income protection. A greater percentage of people 16% would rely on family and an even greater percentage of 35% had no strategy in place at all.
A greater number of people had critical illness or life insurance at 31%; however, these forms of insurance would not help if they lost their income due to a more common and less severe illness or injury or unemployment.
Families were asked what they would cut back on if their income was reduced. Most said luxury expenses such as holidays, socialising and clothes. However 19% would cut down on food and 15% on heating and lighting. This highlights the need for us all to have a plan in place to at least cover the essential monthly outgoings.
Government benefits are much lower than people’s average expenditure. Statutory sick pay is only £86.70 a week for 28 weeks and is not payable to the self employed. Employment and Support Allowance (ESA) ranges from £71.70 to £106.50 per week and job seekers allowance is £71.70.
The average weekly expenditure for a family is £420. Therefore if the main breadwinner was to experience a loss of income it would have a very significant impact on the family if there was no back- up plan in place.
Making a back-up plan
Luckily, there is insurance available to act as a back-up in case something goes wrong.
Income protection protects you if you lose your income due to sickness or injury and unemployment insurance covers you if you lose your job.
The cost of income protection is not as much as you might think. For £3.43 per week a 25 year old could cover themselves for £1,000 per month until retirement age; short term plans which would pay out for two years cost from just £2.19 per week, about the same price as a cup of coffee.
As younger people had the the shortest “Deadline to the Breadline” it is especially important that they have something to fall back on in case something goes wrong. Income protection is actually cheaper the younger you are when you take out the policy.
How Drewberry Insurance can help
Drewberry Insurance can offer impartial advice on the different types of insurance available to protect your income. We are independent protection insurance specialists, which means we have access to all the insurers in the UK and can search for the right insurance policy for you bearing in mind your circumstances and budget.
If you would like further information on income protection speak to one of our team on 0208 432 7333 or get an online quote using the tool below.