The financial impact of a serious illness – are you prepared?
We never think it will happen to us, but unfortunately, that’s also what some of the people it did happen to thought. Being diagnosed with a serious illness that restricts your ability to work can be financially devastating. Macmillan reports that 4 out of 5 people diagnosed with cancer are, on average, £570 a month worse off as a result of their diagnosis. So what can you do to financially protect yourself and provide some security if you also fell ill?
400,000 people living with cancer across the UK struggle to pay their household bills as a result of their diagnosis, according to Macmillian.
To help provide you with a financial buffer, one relatively simple thing you can do right now is start saving into an emergency fund. This is an amount of money that is set aside to cover life’s unexpected expenses.
While it can provide some peace of mind should you become unwell or seriously ill, it can also give you financial security in any unforeseen situation. For example, if you lose your job through no fault of your own, your car breaks down, your home needs serious repair, your partner loses their income suddenly etc.
You don’t need to have a large amount of surplus income to start building up an emergency fund. Just £3 a day could make all the difference should the unplanned for happen.
The financial impact of a serious illness can be catastrophic – 39% of people with cancer have used savings, sold assets or borrowed to cover the costs or the loss of income caused by their diagnosis.
This is why considering what financial protection you can put in place now is essential, before the unexpected happens. There are many different options available from life insurance to critical illness cover. It is crucial to identify the correct solution for your specific circumstances, and it should be something that is considered alongside what other assets you have available such as savings and pensions.
You may wish to think about seeking independent financial advice from a Life Centred Financial Planner to ensure that you find the right protection for your family. It is often less expensive than you may think, and our Life Centred Planners help you through the whole process making it less daunting for you and your loved ones to consider.
If you are employed
If you are employed, then you may be entitled to Statutory Sick Pay (SSP). You can claim SSP for up to 28 weeks if:
- You’re employed – but unable to work.
- Your average earnings in the two months before you stopped working were at least £118 a week.
You can get £94.25 per week (2019/20), and it is paid in the same way as you would receive your wages. While this is a good state benefit, it may not be enough to replace your normal income or pay your regular expenses. You can get more information about SSP on the gov.uk website here.
Your employer may also provide their own sick pay scheme, which is more generous. You can check this by either looking at your contract of employment or speaking to your HR department. It is critical to know if this type of benefit from your employer exists so that you can make the right decisions about any additional financial protection you may or may not need.
Speak to your pension provider to discover if your pension has any ill-health benefits you could potentially be entitled to.
If you are unable to work ever again due to your illness or a disability, you may have the option of retiring early. This will depend on your individual circumstances and the terms of your pension scheme. You might also be able to get higher payments if you need to take your pension early because of a health condition – check with your provider for specific details about your pension.
Be aware that if you take an unauthorised payment from your pension before 55, and do not meet the exemption criteria, you will pay 55% tax on it (there are exceptions). That is why it is crucial to make the right choices for your situation, if you are unsure, then consider getting financial advice.
If your life expectancy is less than a year, then you may be able to take your whole pension pot as a tax-free lump sum if all of the following apply to you:
- you’re expected to live less than a year because of serious illness
- you’re under 75
- you don’t have more than the lifetime allowance of £1,055,000 in pension savings
However, note that if you’re over 75, you will pay Income Tax on the lump sum.
It is crucial to check with your pension provider in this circumstance as some pension funds will keep at least 50% of your pension pot for your spouse or civil partner.
You may be entitled to a range of benefits to help with your living expenses should you become seriously unwell. Macmillan and Marie Curie have information about what benefits you may be able to claim.
You could be entitled to benefits that will:
- Top up your income – for example, Universal Credit or tax credits.
- Help you with essential costs – for example, the housing costs element of Universal Credit or Housing Benefit.
- Allow someone who cares for you to claim Carer’s Allowance.
- Replace earnings – for example, Universal Credit or Employment and Support Allowance.
- Help you with the extra costs of being disabled or having a long-term health condition – for example, Personal Independence Payment.
Bear in mind that claims often take some time to be processed and for you to receive any funds, so you will need to plan how you will finance that waiting period.
You can get more information on the benefits you might be able to apply for should you become unwell and need financial help on the Money Advice Service website here.
Help with NHS costs
In Scotland, Wales and Northern Ireland prescriptions are free for everyone.
If you live in England, then depending on your income you might qualify for help with:
- prescription costs
- dental costs
- eye care costs
- healthcare travel costs
- wigs and fabric supports
You can apply for the scheme as long as your savings, investments or property (not counting the place you live) don’t exceed the capital limit.
In England, the limit is:
- £23,250 for people who live permanently in a care home
- £16,000 for everyone else
Any help you’re entitled to is also available to your partner and any dependent young people. You can get more information on the NHS website here.
Contact your mortgage provider
If you are diagnosed with a serious illness and it is impacting your finances, then contact your mortgage provider to see if they can provide any support. They may be able to amend your payments for a specific period to help you meet your financial commitments; however, it is dependent on the individual provider and your circumstances.
Speak to your energy supplier
More than one in three people diagnosed with cancer say they feel the cold more, meaning that people living with cancer spend, on average, £196 more each year on energy bills. In addition, you may be home for more hours during the day, so other energy expenses may also increase such as electricity for lighting, TV etc.
If you are worried about paying your energy bills while you are ill, you should tell your supplier about your situation and find out what help they can offer.
By telling your energy supplier about your health condition, they might also:
- Register you for their priority service.
- Carry out free annual safety checks.
- Offer emergency call-out priority.
- Protect you from being cut off if you fall into arrears.
There are also government schemes that could help you save money on your energy costs. The Citizens Advice website has a list of grants and benefits to help you with energy costs that you may be able to apply for if eligible.
Macmillan also offers support for people affected by cancer to manage their energy costs – find more information about how they can help on their website here.
Something that you can start doing today to help improve your financial stability is to create a budget. Knowing how much you have coming in and going out is crucial to maintaining your financial security. In addition, allocating funds to each expense you have will help you to live within your means and find opportunities to save.
Having good knowledge of your day to day finances means that if the unexpected happens you can immediately see the potential impact and how you might be able to adapt financially. You can download free templates with a step by step guide on setting up a simple budget here and get started right away.
Preparation is key
While we all hope that a tragedy won’t strike in our own family, it is imperative to have considered the financial impact should you be affected. If you don’t have the resources to cover the usual living expenses if you became seriously ill tomorrow, then you may want to start planning today so you can have peace of mind that your family will be financially secure.
We offer a 1-hour complimentary consultation so you can discuss your concerns and understand how we may be able to help. Contact us today to create a brighter future for you and your family.
If you found this information useful, you may also want to check out the following:
- How to plan for big life events when self-employed
- Protection planning for the self-employed
- I don’t need a will, do i?
MRA help individuals, businesses and families achieve the best quality of life they can with the resources they have. MRA specialise in corporate solutions, cash-flow analysis, life centred planning and much more.
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