According to figures provided by the Bank of England the level of household debt has risen £29m from the previous record high set 5 years ago. To put this into perspective, each adult in the UK now owes £28,489 including any home loans. As a result, concerns have been raised by some that the economic recovery may be debt rather than income based. However the Bank of England has offered assurances saying relative to household incomes, debt has been falling.
The new figures are believed to partly reflect the health of the mortgage market. The trend for unsecured debt however is ambivalent with monthly figures actually falling.
While it may be true that debt levels are falling relative to incomes, the fact is many professionals and the self-employed, will be thinking of taking advantage of rising house prices. This might mean taking out a larger mortgage. Whatever your own level of personal debt, you may not have considered what might happen if you lose your income, through illness. In 2007 the percentage of after tax income spent on a mortgage payment was 48%. Thanks in part to record low interest rates this has fallen to around 27%, but still represents the most significant outgoing for most households.
How would you cover your mortgage and other outgoings if you were unable to work for 2 weeks, 2 months or 2 years? You may not be troubled by a 2 week layoff but a significant illness can be life changing during and even after recovery.
In the UK the average family only has 18 days emergency money if they were to lose their income and typically people over estimate the size of their emergency fund. Even if you have significant savings to dip into, an illness can wipe out savings. After that the only options may be to borrow or raise money selling your home.
You can protect yourself, your family and lifestyle by taking out income protection insurance. Our income protection insurance covers you for a wide range of illnesses and has a payout rate of 99% – one of the highest in the sector. How you spend the money is up to you but personalised cover can avoid using savings or getting into debt. Your policy can be tailored to your circumstances whether you want it to start on Day 1 of your illness or not. Also a cash lump sum is yours when you retire, so even if you never make a claim your premiums generate a financial benefit.