Could your household cope if you were unable to work? If not, read this

If you were unable to work, either for an extended period or perhaps indefinitely, this would understandably have an effect on your financial circumstances.

Without an income, you may be forced to dip into your hard-earned savings and investments, which could put your long-term financial stability at risk. You could also end up borrowing money to pay for essential costs, placing a further financial burden upon your shoulders in an already difficult time.

It may come as no surprise, then, that 42% of UK adults worry that their household wouldn’t cope if they had to stop working, a new report from Scottish Widows reveals. This may be particularly pertinent to you if you are the breadwinner of your household, or a major contributor.

While none of us would like to dwell on the eventuality of an illness or injury affecting our quality of life, it is essential to think about the “what if?” questions and ensure your financial plan accounts for these scenarios.

Here’s how to prepare your finances for an unexpected hit that prevents you from working.

Discuss the “what if?” questions with your family

Before taking any kind of financial action, it may be wise to first sit down with your spouse, partner, civil partner, or any other close loved one, to discuss your biggest “what if?” questions.

These might be difficult topics to bring up, but having a solid plan with those closest to you might bring you peace of mind.

Some examples of questions you could ask are:

• Could we stay in our home if I wasn’t able to work for a year or more?
• How would we cover essential bills if my income were to dry up?
• What would our household income look like if one or both of us became disabled?
• Who would make decisions for me if I lost mental capacity?

Sitting down together and tackling these challenging questions may give you an idea of the gaps in your existing plan, offering you the opportunity to form a robust strategy in case the worst happens. Plus, if you don’t have all the answers and feel you need professional guidance, your Kellands financial planner can help you work through these questions, and any others you may have.

Build a solid emergency fund

If you haven’t already, it is sensible to begin building an emergency fund that covers between three and six months’ essential expenses.

These might include:

• Mortgage repayments
• Utility bills
• Transport costs
• Essentials like food and toiletries
• Your children’s school fees
• Other loan repayments.

It’s often helpful to keep these funds in an easy access cash savings account, so that you can access the money at a moment’s notice if needed. According to Moneyfacts, as of 6 November 2024, you can open an easy access account that earns up to 5% interest.

Remember to account for the most up-to-date costs possible when securing your emergency fund. A study published by MoneyAge reveals that the cost of three months’ essentials has gone up by more than £1,000 in the last three years. So, your six-month emergency fund could need a £2,000 boost compared to a fund you put together three years ago.

Make sure your financial protection is up to scratch

Financial protection can act as an essential safety net if the worst happens. From being diagnosed with cancer to being involved in an accident, none of us knows what life might throw our way.

There are two key forms of financial protection that can help you cover costs if you’re unable to work due to an illness or injury.

Critical illness cover

If you make a successful claim, critical illness cover pays out a tax-free lump sum that can subsidise essential expenses while you’re ill and unable to work.

According to the Association of British Insurers (ABI), the average critical illness cover payout in 2023 stood at £68,354. The amount you receive depends on the specific terms of your agreement – but in any case, an injection of capital could help to tide your wealth over during your period off work.

Income protection insurance

Taking a slightly different form to critical illness cover, income protection insurance payouts usually come in monthly instalments for a fixed period. They cover up to 60% of your normal income and could last until you return to work or retire.

The ABI says that in 2023, the average value of income protection claims paid was £22,270. So, if you were required to be out of work for a period of months, this tax-free income could help you keep up with bills and prevent you from depleting your savings or retirement fund.

Register a property and financial affairs Lasting Power of Attorney

Finally, registering a Lasting Power of Attorney (LPA) could be an essential protective step in the event that an illness or injury causes you to lose mental capacity.

A property and financial affairs LPA allows you to appoint an “attorney” or attorneys, usually one or more trusted loved ones, who would make decisions on your behalf if you were no longer able to. This might be buying or selling property, making insurance claims, or paying bills.

You don’t need to lose capacity in order to give the reins to your attorney, but in the event that you do, they’ll be called upon to make decisions in your best interests. Without an LPA in place, your next of kin could struggle to access accounts and other key documentation needed to manage your wealth.

You can also register a health and welfare LPA that allows your attorney(s) to make decisions about your care. Just remember: it is too late to register either form of LPA after you have already lost mental capacity.

You can consult a legal professional when registering your LPAs or do so yourself by visiting the government website. Protecting your wealth from the unexpected shouldn’t be the last thing on your to-do list, so it may help to ensure you take this step as soon as you can.

Get in touch

Your financial plan is unique to you – and nobody wants to lie awake at night worrying about the “what if?” questions on their mind.

That’s where bespoke financial planning comes in. We’ll help you shield your wealth where possible from life’s twists and turns, ensuring greater peace of mind in the process.

To talk to your financial planner about protecting your wealth, or to start a conversation about becoming a client, email us at hale@kelland.co.uk, or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

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