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Just in case: protecting against income cuts

You may assume you’ll never need it, but if you experience redundancy or illness,

you may become eligible for universal credit. However, if you imagined that the

state would provide enough support in the event of financial difficulty due to sickness

or unemployment, it’s time to think again.


The government is rolling out universal credit, a new single payment system designed to replace six existing state benefits. Universal Credit is expected to be adopted nationwide by 2023. However, delays to implementation and complaints that the switch is leading to financial hardship have caused controversy.

Universal credit is paid monthly to those who are out of work, as well as to people in work but on low incomes. It replaces the following benefits:

- Child tax credit

- Housing benefit

- Income support

- Income-based jobseeker’s allowance (JSA)

- Income-related employment and support allowance (ESA)

Working tax credit

Relying on the state benefit system to provide an adequate safety net if you lose your job or you are too ill to work is generally unwise.

It is designed to provide a basic standard of living and may not cover your mortgage or full rental payments. The amount paid under universal credit will depend on a range of factors, including your housing costs, number of children, other earnings or savings, and whether you have an existing disability.



The good news is that insurance can bridge the gaps in your financial security if you lose your job, become too ill to work or die.

Term life insurance is the most basic type of life insurance. It pays out if the policyholder dies before a set date – usually retirement, or the end of a mortgage term. This is often a cost-effective option, because premiums are low as the chances of claiming are relatively low. However, should the worst happen, the lump sum can help ease financial worries at a difficult time.

Critical illness insurance pays a fixed lump sum payment if you are diagnosed with a specified serious illness, including most types of cancer, stroke and heart disease.

Income protection insurance pays a monthly amount – usually a fixed portion of your regular earnings – if you cannot work because of illhealth.

This normally only pays out after you have stopped work for a certain period of time.

Such protection can cover your mortgage payments as well as other essential bills. All these policies can be purchased by individuals, but some employers also provide cover.

The government recently confirmed that any payment from these insurance policies won’t affect your entitlement to state benefits such as universal credit. If you are concerned about potential consequences for your income if you fall ill, please get in touch.



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