How long could you survive without your salary?

What would happen if you were off work for week? A reduced income may be paid in the form of statutory sick pay (SSP), or you might receive your full salary if your employer is generous. If you're self-employed you can't claim SSP or company sick pay from someone else.

What if you were signed off work for 3 months?

How about 2 years? The remainder of your career?

Just how long could you survive financially?

These are not scare tactics - these are simple questions about which too many people don't think until it's too late.

Too late might be when you've been unable to work for 3 months, your contractual sick pay period is ending, your savings fund has run dry and you now have to survive on state benefits.

Too late might be when you approach retirement and are more likely to need time off work for health reasons.

Too late could be when you are diagnosed with a medical condition which limits the work you can do, and therefore your retirement plan has to change.

Protect Yourself

Some ways people are protected against this are : a) Having a very affluent family who could and would replace your lost income if you can't work; b) having enough cash available to pay yourself an income similar to that which you earn now; or c) by taking out an insurance policy so your household income remains at a similar level even if you have to leave your job due to illness or disability.

a) A minority of people are fortunate to be in this group, and insurance may or may not be right for them;
b) Do you have enough cash to survive until retirement?
c) This last option seems like it could be expensive, doesn't it?

Well, c) isn't necessarily expensive - it all depends on the risk of you making a claim. A 65-year old smoker working as an explosives operative with severe back problems is likely to be uninsurable.

For most people who don't work in high-risk jobs, or who aren't already suffering serious illnesses income protection is a sensible and affordable way of making sure that the household income could still be received every month.

What is it worth to you?

So what is that level of cover worth to you? £10/month? £25/month? £50/month. Or look at it another way - 1% of your salary? 3% of your salary?

It may surprise you to know that for a lot of people, it ought not to be a million miles away from these figures. Of course, as I mentioned earlier, the higher your risk, the less of a good deal you might find.

The irony is, as with most forms of insurance, that the more you are in need of cover, the more expensive it is likely to be. Those in their late teens/early twenties will often not see the point in spending, let's say for example, £15/month for the next 45 years, as they feel the likelihood of a claim is so low it is worth the risk. Conversely, if you were to ask people in their fifties who have had to change occupations due to health or illness if they would have taken such a policy when they were twenty, what do you think those people would say? Chances are, they would wish they had taken out such a policy earlier.

Many people think they don't need insurance until it is too late. Here is part of a famous Winston Churchill quote:

"If I had my way, I would write the word "insure" upon the door of every cottage and upon the blotting book of every public man, because I am convinced, for sacrifices so small, families and estates can be protected against catastrophes which would otherwise smash them up forever"

Maybe it would be sensible to speak to your financial adviser to find out what it would cost you to protect your income?

How Well Protected Is Your Business?

To safeguard your business you have probably secured buildings insurance, machinery or equipment insurance and indemnity or public liability insurance. You may have covered the tangible assets of your business, but have you protected the most important assets: the people that directly contribute to your profits? Are your profits protected should you lose employees unexpectedly? How will your business profits be protected if you or your business partner is taken ill and can’t work?

If you run your own business, you probably have one or more key employees that are integral to its success. These are the people who possess the skills, knowledge, experience or leadership that makes a vital difference to your bottom line.

Does your business have a Sales Manager with an established network of contacts perhaps? Do you have highly skilled or technical staff? What about you, the director or business owner? Have you considered what would happen if they suddenly died, or suffered a critical illness that forced them to be absent from work for a long period of time?  Have you considered the costs and time implications associated with recruiting a locum or temporary contractor to fill the gap? What effect will their absence have on your business’s profits?

If the unexpected happened before you've had a chance to protect against such loss, your business would be at risk of collapse.

Q. What is Key Person Insurance? 

Key Person Insurance is a simple way for businesses making a profit to insure their business against the losses they might suffer as a result of the death, disability or critical illness of a key individual.

Q. My business is very small with fewer than ten staff. Do I need to be concerned with Key Person Insurance? 

Absolutely.  With a small business key people are more likely to be responsible for a larger proportion of the company’s profits. If the unexpected were to happen, then the impact for a small business would be dramatic and could have huge consequences financially.

Q. My business is larger with more Key People. What should I do? 

Large businesses should also consider Key Person Insurance. FTSE100 companies all insure their key people as part of their business continuity plan. Even though the impact of one person no longer coming to work wouldn’t be as financially disastrous for a very large firm, they still consider it vital to protect their profits.

Q. Is there any other cover I should be aware of to protect my business? 

Yes. As part of your business continuity planning you should consider shareholder protection and loan protection. These provide the business with cash to buy the shares of a deceased or seriously ill director, or repay a loan should the bank, for example, recall this on the death of a director. Whether you are a sole trader, partnership or a Limited Company, you must ensure that your business has the correct financial safeguards in place.

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With over 25 years of experience in helping people make their financial plans, Ewing Associates build strong trusted relationships with our clients. We offer an expert and friendly financial planning service.

Our experience covers personal and corporate financial advice. We fully understand the individual needs of every client and provide a first class service.

We will help you understand the numerous financial services available, tailor the right solution to your specific needs and help make your money work harder for YOU.

Ewing Associates’ services include mortgage advice, personal and corporate financial planning, investment advice and estate planning.

E-mail andrew@ewingassociates.co.uk or call 01480 357100 for more information

The financial regulator wants a change to the way financial products are sold. A reaction to Martin Wheatley's speech.

In a speech published today, the Managing Director of the FSA, Martin Wheatley says he intends to change the culture of how consumers are viewed and sold to by some financial organisations. This follows the recent PPI and loan mis-selling scandals, as well as other ativities which have tarnished the public's view of the financial services industry, such as Libor abuse and the mis-selling of interest rate products to small businesses. Mr Wheatley goes on to say:

But what is also still clear is that we need financial services more than ever. Most of us need to save more for our retirements, but many are not doing enough. And all of us need a strong, profitable financial services industry that can give us the advice we need to guide us, that can help to protect us from the unforeseen, and that can deliver the products that will help us achieve our life goals.

I completely agree with this; it not only explains why the industry needs to be ethical, but also any business which correctly identifies and plugs such gaps in people's lives will be contributing to their own long-term success by doing so. But what does concern me is how the FSA or the FCA might further restrict the ways in which good quality, relationship-based financial advisers can operate, potentially resulting in fewer people receiving important financial advice.

Although Mr Wheatley's focus appears to be on the non-advised arena that consumers will most likely encounter on the web and along the high street, the ideas he presents are high-level and therefore rather general. At this stage it's difficult to ascertain whether protection products such as life insurance, critical illness, and income protection will ultimately be affected by these plans. If they are, then it's important to get the balance right between protecting consumers from unscrupulous salespeople and not hindering, but rather improving accessibility to and awareness of good financial advice.

Pricing Customers Out

If advisers were no longer allowed to be remunerated by providers of protection products this would inevitably lead to a fee-based system similar to that for investment advice following changes brought about by the Retail Distribution Review (RDR). The problem with this approach for protection, is that few consumers actively seek protection advice. I suspect even fewer would be willing to pay a fee for it, especially if protection and life insurance can still be bought on a non-advised basis direct from providers over the internet, for example.

If we did reach such a situation it would likely lead to more consumers buying cover which may not be best suited to their needs (e.g. paying more for level term when only decreasing mortgage protection is required; creating a potential inheritance tax issue; not correctly assessing what sums insured are needed for family protection; not writing policies in trust and thereby failing to avoid probate delays). Or, worse still, we could see more people not taking out any cover at all and leaving their families unprotected because of a public perception that advice is too costly.

The Best of Both Worlds

To ensure protection customers continue to receive the best outcome, I believe that insurance providers  should continue to pay advisers for finding their clients. This way, advice and recommendations can still be offered with no fee required from the customer. Upfront fees would no doubt alienate a large proportion of the public who might otherwise have benefited from protection.

What I think is key to improving the service which consumers receive, is that non-advised selling of protection products should cease. This would ensure that all protection customers have received advice on what is right for their present circumstances. Every policy written should have evidence of its suitability for each particular client, including less/more expensive alternatives that were available yet not appropriate, features which were included/excluded and why they were/weren't right for the client.

This would result in the best of both worlds for consumers: no fee means a similar proportion as at present would still perceive financial protection as an accessible and affordable avenue to explore; and offering protection on an advised-only basis minimises the opportunity for mis-selling (due to current methods of quality monitoring) as well as providing all the added benefits of the advice process.

Let's hope, for the sake of consumers and their families, the FCA see things from a similar perspective.

Losing sight of everyday threats could put your business at risk

If you are a business owner or a director, you are no doubt working harder than ever to steer the company through this difficult trading period. As result, your thoughts may be more focussed on the short-term needs of the company more than usual.

But it’s more important now that you don’t lose sight of the ongoing threats to your business – threats that could have an impact as severe as any market downturn.

Protecting your most important assets

If a director, co-owner or key individual within your business were to die, or become critically ill, it could have a serious impact on your company’s ability to trade. For instance:

• How would the loss of their expertise and experience impact the business?
• If they are a shareholder, what would happen to their shares? Could the business afford to buy them back?
• How would your debtors and creditors react? Would loans be called in?

You probably already protect your company’s material assets, like premises, vehicles and equipment. Surely it makes sense to also protect the company’s most important assets – its people.

How you can obtain help

Some financial advisers often work with businesses offering advice on how best to protect them from the financial impact of unforeseen events.

There is a range of products that can give you peace of mind when it comes to the long-term stability of your business.

If it has been several years since, or if you have never conducted a review of your business's protection requirements, it would be a good idea to find a financial adviser who specialises in this area for an appointment. Don't leave your business unprotected until it is too late.