How to Shield Your Finances from Serious Illness

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Most of us know someone who has been affected by a serious medical issue, whether through illness or accident. And yet few of us accept that something like that could happen to us.

Typical life expectancies tell us that most people will live long lives, but this doesn’t necessarily mean they will be free of health problems. Many conditions are acute and just require a course of treatment before resuming normal life. Others might not be life threatening, but could impact quality of life for many years. Either way, you don’t want to have to worry about money at an already stressful time.

It’s not the most pleasant subject to think about, but a few simple steps could help to protect your finances if your health takes a turn for the worse.

Keep an Emergency Fund

The basic foundation of a financial plan is an emergency fund. Ideally, you should aim to keep around 6 months’ worth of expenditure in an easily accessible bank account.

In terms of your health, an emergency fund could help to pay for private treatment, getting you back to work more quickly than if you had waited for the NHS. It could also fund alterations to your home or vehicle if your condition is making life difficult. Or you could simply use the money to cover your basic lifestyle expenses, giving you peace of mind if you are out of work for a time.

If you don’t have an accessible cash reserve, you may need to rely on family members, debt, or depleting your pensions or investments.

If you are just starting to think about financial planning, building an emergency reserve should be your first step.

Don’t Over-Extend Your Budget

If you are overspending or have a lot of debt, you will be financially vulnerable if your health deteriorates. You might not be able to cover your essential costs, and could risk financial insolvency. 

To get your budget under control:

•         Make a list of your income sources and essential expenditure.

•         Allocate a fixed amount each month to essential spending, saving, and luxuries. Setting up separate bank accounts can help with this.

•         Shop around for the best deals on your bills and consider what you could cut back on.

•         Aim to pay off expensive debt such as credit cards or loans.

•         You might want to overpay your mortgage, but think carefully about this, particularly if your interest rate is low.

Check Your Employment Contract

Many people believe that their employer will help if they are unable to work for a period of time. Sadly, this is not always the case. Statutory sick pay is only £96.35 per week for 28 weeks, and your employer is not obliged to offer anything more than this.

Some contracts, particularly for more senior roles, offer enhanced sick pay, for example six months full pay and six months half pay.

Your employer might also offer critical illness, income protection, private medical insurance, or death in service benefit.

It’s worth reviewing your contract to check how much protection you actually have through your employer. You could even negotiate for better benefits in lieu of an equivalent pay-rise, which could be cost effective for you and the company.

Arrange Critical Illness Cover

A critical illness policy is designed to pay out a lump sum if you are diagnosed with a serious illness. This can help to clear your mortgage, pay for treatment, or cover your bills for a period while you are unable to work.

Policies generally cover a set list of conditions at a specified degree of severity. Older policies can sometimes be more comprehensive, as medical science has advanced and the definition of ‘critical’ has evolved.

Policies are subject to underwriting, which means that younger, healthier people will pay lower premiums. It’s worth setting up critical illness as early as possible.

Investigate Income Protection

Critical illness pays out a one-off lump sum, but what about longer term?

An income protection policy could provide you with a regular income until retirement age if you can’t work due to chronic health problems.

There are various options that you can choose from when setting up your policy, for example:

•         The deferral period, i.e. how long until the policy starts to pay out,

•         The term of the policy and the benefit payment period,

•         Whether the benefits (and premium) should increase or remain level.

A short deferral period, a long plan term, and annual index-linking will give you the greatest peace of mind, but will also be the most expensive. You should consider your circumstances, requirements, and budget before you apply.

Consider Private Health Insurance

Private healthcare can’t prevent serious illness, but it can offer the following benefits:

•         Quicker diagnosis and treatment.

•         More choice over hospital and doctor.

•         Access to added services such as regular health checks and telephone consultations.

•         Incentives to take care of your health, such as discounts on gym memberships.

Private healthcare is not designed to help with accidents, emergencies, or chronic conditions. But it can help you return to work more quickly in some situations, minimising the impact on your finances.

Review Your Life Cover

Most people who are impacted by serious illness or injury survive for many years. But if you are thinking about financial risks, it could also be worth reviewing your life cover.

The ideal time to set up or increase your life insurance is when you are young and healthy. If you wait until you have already had a health scare, your premiums may become unaffordable. A history of serious illness might mean that insurers won’t cover you at all.

Your life insurance should aim to cover any debts and obligations you have, as well as providing for any financial dependents. The main breadwinner of a family with a mortgage will need much more life cover than a single person in a rented home.

To future-proof your life insurance, you can add optional increases at certain life events such as marriage, becoming a parent, or work promotions. This means that underwriting is carried out at the start rather than when you are older, and potentially less healthy.

Serious illness can be devastating for families, but a combination of the above measures can help to ensure that your finances remain on track so that you can focus on your health.

Please don’t hesitate to contact a member of the team to find out more about financial planning and protection.