1 in 5 households “a month from financial difficulties” – here are 3 ways to build your resilience

Over the last few months, the cost of living crisis has never been far from the headlines. As a result of lingering supply chain issues caused by the Covid pandemic, and the war in Ukraine, prices have risen sharply over the last year.

According to the Office for National Statistics (ONS) inflation stood at 10.5% in the 12 months to December 2022. That means goods and services that cost £100 a year ago cost an average of £110.50 now.

You’ve probably noticed these in the marked increase in the cost of your energy bills and your weekly food shop. The ONS reports that food increased in price by almost 17% in the year to December 2022 – likely to be the fastest rise in food prices since autumn 1977.

The largest upward effect came from staples such as milk, cheese and eggs, where prices overall rose 4.1% between November and December 2022.

These factors combined may mean you have become more concerned about your household finances. Can you continue to afford your commitments based on your income? And what would you do if you or your spouse/partner was suddenly unable to work for whatever reason?

Read on to find out more about the potential financial hardship you could face if you or your partner were unable to work, and for three simple ways you can build your financial resilience.

Half of households would be in financial difficulties within a year if the main wage earner could not work

New research from a leading insurer has revealed that more than half of households (55%) will run into financial difficulties within a year if the main breadwinner was unable to work.

The study, reported by Cover, also revealed that almost 1 in 4 households (22%) would face financial hardship within one month if the main wage earner became seriously ill and was unable to work. That’s equivalent to 6.3 million households across the UK.

Vincent Guadagnino from the insurer who commissioned the research said: “Millions of households would be in an incredibly vulnerable position if the main household earner was to find themselves out of employment, with the impact felt in an incredibly short amount of time.

“For many households, the impact wouldn't be measured on months but just a few short weeks.”

If you’re concerned that you don’t have the financial resilience to weather a storm, here are three great ways you can protect yourself and your family.

Build up an emergency fund

Cover report that the findings of the research show 25% of households do not have any savings in place for emergencies. Nearly half (47%) of those with savings have had to stop topping up their savings due to the rising cost of living.

Of those households without savings, two-thirds (66%) would fall into financial difficulties within 12 months if the main breadwinner was unable to work.

One of the first steps you should take is to try and build up an “emergency fund”. This is a pot of savings that you can access at short notice if you need them. You might dip into your pot if:

• You face an unexpected expense such as car repairs, a new boiler, or maintenance to your home
• You are out of work for a period, perhaps due to ill health or an accident, and you need to maintain your bills and other commitments.

Most experts suggest trying to save between three and six months of expenses in an easy access savings account, such as a Cash ISA.

An emergency fund means you benefit from the peace of mind that you do have some savings you can access in a pinch. You don’t have to rely on expensive borrowing to pay for essentials – such as putting them on your credit card – leaving you with a high interest debt you might struggle to repay.

If you work for yourself you might want to try and save more, especially if your income would dry up if you were unable to work.

Put the right income protection in place

If you had to take some time off work due to illness or injury, could you and your family continue to maintain your regular commitments such as your rent/mortgage and bills?

Worryingly, the number of adults without jobs due to long-term illnesses has risen from around 2 million people in the spring of 2019 to approximately 2.5 million in the summer of 2022.

If you’re employed, your employer might pay you full sick pay for a period, although this is likely to reduce to half pay after a fixed period. Or, you might be eligible for Statutory Sick Pay (SSP) which, in 2022/23, is just £99.35 a week. 

If you have saved an emergency fund, you may be able to dip into your fund to pay your bills while you’re recovering.

If not, putting income protection in place can give you the reassurance that you would continue to receive an income if you weren’t able to work.

Income protection typically pays a proportion of your salary – up to around 60% – if you’re not able to work due to ill health or because you’re injured or have been in an accident. It will either pay out for a fixed period, or until you return to work or retire.

You can often benefit from low cost cover by dovetailing your income protection with your employee benefits. For example, if you receive 12 weeks full sick pay from your employer, you can arrange your income protection so it kicks in from week 13 if you’re absent from work for that length of time.

Find out more about income protection on our website.

Make sure you have enough life insurance

Vincent Guadagnino from the insurer who carried out the research revealed that just 35% of people have life insurance, despite research showing that “most people” see the benefits of having this cover in place.

He added: “Particularly in these difficult economic times, we would encourage people to review their finances carefully and consider what cover, if any, is right for them”.

Life insurance can cost from just a few pounds a month and gives you and your loved ones the peace of mind that they would receive financial support if you passed away unexpectedly. It can also often be beneficial to arrange some protection for your spouse/partner too.

Receiving either a lump sum or a regular income after your death means your loved ones don’t have to worry about paying bills at a time when they will be grieving your loss. They can continue to remain in your home, and the money can ensure your children benefit from all the opportunities you wanted to give to them.

Putting the right life insurance in place is the cornerstone of a good financial plan. It boosts your financial resilience, and helps you sleep at night knowing your loved ones would be financially secure if you were no longer around.

Get a life insurance quote online now

As protection experts, we can help you to find the right cover you need. We’ll search the market to find the right protection for you at the cheapest possible rate, and can help you to arrange your protection and put it in trust for your loved ones.

We work with household names such as Aviva, Scottish Widows, and Legal & General to ensure you get the protection you need – enabling you to be more resilient in uncertain times.

Get a life insurance quote now or speak to one of our experts for help.