2 valuable types of financial protection to consider if you have a family

How would your family cope financially if you passed away? It may be a difficult question to consider, but it could also be an important one. Understanding the challenges your family could face may mean you’re able to identify steps to protect them, including taking out financial protection if appropriate.

Financial protection is a type of insurance that would pay out when certain conditions are met to provide a financial safety net when the unexpected happens.

If you’re considering how to provide for your family should the worst happen, there are two key types of financial protection you might want to consider.

1. Life insurance would pay out a lump sum to your family

If you passed away during the term, life insurance would pay out a lump sum to your beneficiary. Your family would be able to use this money however they wish.

When taking out life insurance, you can choose how much you’d like the potential payout to be. The figure, along with other factors, like your health, would affect the premiums you’d need to pay to maintain the cover.

2. Family income benefit could provide your family with a regular income

Family income benefit would also provide your loved ones with financial support if you passed away. However, instead of receiving a lump sum, they’d benefit from a regular income for a defined period.

Again, you can select the income your family would receive if you passed away and you’d need to pay premiums to maintain the cover.

Life insurance v family income benefit: Which is right for your family?

Both life insurance and family income benefit could provide your family with financial security at a time when they’re grieving. It could mean they’re able to maintain their lifestyle or allow your partner to take time away from work to care for your children.

So, which option is right for you? There isn’t a clear answer, and it’ll depend on your family’s needs and priorities.

Life insurance could be an appropriate option if you’d like to provide your family with a way to pay off large financial commitments, such as an outstanding mortgage. You might even choose decreasing term life insurance, where the payout could fall in line with the mortgage repayments you’re making – this could reduce the premiums you’d need to pay.

Receiving a lump sum payout could also be the right option if you want to provide your family with flexibility. They could use the money how they wish, from paying day-to-day costs to investing the money to create a nest egg for your child.

However, life insurance might not be right for you if your partner isn’t comfortable handling large financial sums.

As family income benefit would provide a regular income, it could ensure your family’s ability to meet essential outgoings. Your loved one might also find regular payments more reassuring and easier to manage than a larger one-off lump sum.

There are drawbacks to choosing family income benefit too. As they wouldn’t receive a lump sum, it could provide them with less financial freedom and might limit their options.

You don’t have to choose between life insurance and family income benefit. You might decide they are both appropriate for your family.

For example, you may choose to take out life insurance so your family would have enough to pay off large financial commitments, such as your mortgage. You could then take out family income benefit to cover day-to-day costs until your children reach adulthood. 

While it may be a difficult conversation to have, speaking to your partner about your worries and financial protection options could be valuable.

If you don’t already, involving your partner in your overall financial plan could be useful too. Suddenly being responsible for financial commitments and long-term plans if it isn’t something they’ve been involved in before could be overwhelming.

By including them in financial reviews, they might be better equipped to handle the family’s finances and they may be more comfortable seeking support from your financial planner if they already have an established relationship.

Contact us to discuss how you could create financial security for your family

As well as taking out financial protection that would pay out if you passed away, there might be other steps you could take to improve your family’s financial resilience. Please contact us to discuss creating a financial plan that places those who are most important to you at the centre.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions.

Why inflation solutions should remain part of your long-term financial plan

High inflation has been a hot topic over the last couple of years, and as its pace stabilises, you might think it no longer needs to be part of your financial plan. Yet, skipping inflation when calculating your long-term finances could leave you with a shortfall.

The government sets the Bank of England (BoE) a target of keeping inflation at 2%.

The BoE explains that inflation that is too high or moves around a lot makes it hard for businesses to set the right prices and for people to plan their spending. However, inflation that is too low, or even negative, may put people off spending because they expect prices to fall. This hesitation to spend could lead to companies failing and people losing their jobs.

As a result, stable inflation is important for the economy.

A combination of the Covid-19 pandemic and the war in Ukraine, as well as other factors, led to the UK and many other countries experiencing a period of high inflation. Indeed, according to the Office for National Statistics (ONS), inflation reached a peak of 11.1% in October 2022 – the highest rate recorded in more than 40 years.

The good news is that the rate of inflation has since fallen and started to stabilise. In the 12 months to August 2024, the ONS reported inflation was slightly above the BoE’s target at 2.2%.

While the immediate pressure of prices rising sharply has eased, that doesn’t mean you can forget about inflation when you’re reviewing your long-term finances.

Even when inflation is stable, prices are often rising

While inflation meeting the BoE’s target won’t often make headlines, it still means that the cost of goods and services is rising. You might think 2% inflation won’t affect your finances too much. Yet, when you look at the long-term impact, the effect could be harmful if it’s something you’ve overlooked.

According to the BoE, inflation averaged 2% a year between 2010 and 2020. So, if you had £20,000 in 2010, you’d need almost £24,320 in 2020 just to maintain the spending power you had a decade ago.

That could have a substantial effect on some parts of your financial plan. For instance, if you’ve set a retirement income without considering how it may need to grow to support your lifestyle, you could find you face a shortfall. During a retirement that could span decades, the effects of even 2% inflation might really add up.

Inflation has only hit the target rate 30% of the time since 1997

What’s more, while the BoE has an inflation target, there are factors outside of its control that may cause it to rise or fall, as the last few years have demonstrated.

Indeed, according to a report in FTAdviser, since 1997, the BoE has missed its target around 70% of the time, and it’s more likely to be above the target than below it.

As a result, even if you’ve factored a 2% rise in inflation into your long-term plan, you could still experience outgoings rising at a quicker pace than your income. Considering the effects of a high inflation environment may help you secure your finances and keep goals on track even when factors outside of your control lead to expenses increasing.

Making inflation part of your financial plan

It’s impossible to know what the rate of inflation will be next year, and when you’re creating a long-term financial plan, you might want to weigh up the effect of inflation over decades. While you can’t predict what will happen, there are often steps you can take to incorporate it into your finances and provide security.

As part of your financial plan, you might consider how to:

• Create a financial buffer in case inflation is higher than you expect

• Use other assets to support your income during periods of high inflation

• Grow your wealth at a pace that could match or beat the rate of inflation

• Regularly review your short- and long-term finances to ensure they continue to reflect your current circumstances.

An effective financial plan could help you prepare for the unknown, including the inflation rate.

Contact us to discuss how to incorporate inflation into your financial plan

If you’d like to review your financial plan and understand how inflation might affect your outgoings, we could help. Please contact us to arrange a meeting with our team.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Climbing annuity rates could boost your retirement income

Purchasing an annuity could provide you with a regular income throughout retirement. And rising annuity rates could help your pension savings go further.

An annuity is something you buy, often with the money saved in your pension, which then provides a guaranteed income. The annuity rate offered affects the income you’d receive and it can vary between providers.

If you’re nearing retirement, the good news is that annuity rates have increased. According to the Standard Life Annuity Rate Tracker, the average annuity rate for a healthy 65-year-old was more than 7% in June 2024. 

Let’s say you have £100,000 to purchase an annuity. If you were offered a rate of 5%, you’d receive an annual income of £5,000. With an annuity rate of 7%, you’d receive £7,000. So, rising annuity rates could help you get more out of your pension savings. 

The above figures provide an example of how an annuity could support your retirement, but several factors will affect the income you could receive. Rates can also vary between providers, so it may be worthwhile shopping around before you purchase an annuity.

Choosing an annuity could provide you with financial security

One of the key benefits of choosing an annuity is that you’ll receive a regular income that you know you can rely on. For some people, this security could provide peace of mind when they retire. As your money will no longer be invested, you will also be protected from market volatility.

If knowing how much income you’ll receive each month in retirement would make you feel more comfortable, an annuity could be right for you.

However, there are drawbacks to consider too.

Compared to other options, an annuity is less flexible. For example, you cannot take a higher income from an annuity to cover a period of increased outgoings. So, considering how your income needs may change in retirement could be useful.

In addition, your savings could remain invested with alternative options. While this means your money would be exposed to investment risk, it also provides an opportunity for your retirement savings to grow further.

It’s important to weigh up the pros and cons of annuities before you purchase one, as it may not be possible to change your mind afterwards. We could help you assess how to turn your pension into a retirement income in a way that aligns with your goals and needs.

4 valuable questions to answer if you’re purchasing an annuity

1. Would you benefit from a joint annuity?

If you’re retirement planning with your partner, you might find that a joint annuity is valuable. A joint annuity would continue to provide an income for your partner if you pass away first. It could provide both you and your partner with peace of mind and ensure their financial security.

You’ll usually be able to decide how much of the income they’d receive, such as 60% of the full annuity. So, it might be worthwhile calculating how much they’d need to cover essential expenses and to maintain their lifestyle.

2. Do you want your income to rise in line with inflation?

Some annuities will pay out a static income for the rest of your life. This may be suitable for some people, but it’s often wise to consider the effect of inflation.

Inflation means the cost of goods and services rises. So, if your income doesn’t increase too, it’d gradually buy less. Let’s say you purchased an annuity in 2003 that provides an annual income of £30,000. According to the Bank of England, two decades later, you’d need an income of more than £52,500 simply to maintain your spending power.

So, choosing an annuity that will provide an income that increases each year could be valuable.

3. Do you qualify for an enhanced annuity?

Research suggests some retirees could be missing out on a potentially higher income by not taking out an enhanced annuity.

An enhanced annuity might offer you a higher income because of your medical history or current state of health. It may cover a wide variety of health issues, such as diabetes, high blood pressure, or chronic asthma. Some lifestyles that could reduce your life expectancy, such as smoking, might also mean you’re eligible for an enhanced annuity.

Yet, according to a report in IFA Magazine, 84% of retired annuity holders who would likely qualify for an enhanced annuity do not have one.

4. What proportion of your pension do you want to use to buy an annuity?

Finally, you may want to consider how much of your pension you wish to use to purchase an annuity.

When accessing your pension, you can choose to mix and match your options to create an income that suits your needs. So, you might decide to use half of your pension to secure a regular, reliable income through an annuity. You may then flexibly access the remainder when you need to.

Get in touch if you’d like to discuss your pension and annuities

If you have questions about annuities or would like to arrange a meeting to talk about your retirement plan, please get in touch.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

3 insightful pieces of data that could help you remain calm during market volatility

When you read that investment markets have fallen you might feel nervous or scared about the effect it could have on your future. Emotions like these sometimes lead to impulsive decisions that aren’t always in your best interest when you consider the long term. So, read on to discover some insightful pieces of data that could help you remain calm.

Volatility is part of investing – a huge range of factors might influence whether a stock market rises or falls. However, history shows that, over the long term, markets typically go on to deliver returns.

Recently, markets experienced volatility amid fears that the US was on track for a recession. Indeed, on 2 August 2024, US technology-focused index Nasdaq fell 10% from its peak. Just a few days later, the market rallied, and it was technology firms that led the way.

Concerns about the US economy weren’t confined to the US indices either. Markets fell in Europe and Asia too. In fact, Japan’s Nikkei index suffered its worst day since 1987 following the news. Again, it didn’t take long for the markets to bounce back.

Returns cannot be guaranteed and recoveries may be over longer periods. Yet, the above example highlights how making a knee-jerk decision due to volatility could harm your long-term wealth. If you’d responded by selling your investments when you saw markets were falling, you’d have missed out on the recovery.

So, if volatility is part of your experience when investing, how can you remain calm? These pieces of data could help you hold your nerve.

1. Investment risk falls over a longer time frame

It’s important to note that all investments carry some risk. There is a chance that you could receive less than the original amount you invested. However, the level of risk varies between investments, so you could invest in a way that reflects your risk profile and financial circumstances.

Usually, it’s a good idea to invest with a five-year minimum time frame. By investing for longer, you’re giving your investments a chance to recover if they fall due to short-term volatility.

Research supports this too. Using almost 100 years of data on the US stock market, Schroders found that if you invested for a month, you would have lost 40% of the time. Interestingly, when you invest for longer, your odds of losing money start to fall.

When invested for five years, the odds of losing money fall to 22%, and at 10 years it falls to 13%. The research shows there have been no 20-year periods during the time analysed where stocks lost money overall.

You can’t rule out risk entirely, but by investing for a long-term goal, you could minimise the chance of losing money.

2. Sharp drops in the market occur more often than you think

One of the reasons investors react to market movements is that sharp falls may feel like they’re unprecedented and that you should act as a result. Yet, the Schroders research suggests that sharp falls are more common than you might think.

Analysing the MSCI World Index, which captures large and mid-cap representations across 23 developed countries, the study found that 10% falls happen in more years than they don’t. Indeed, in the 52 calendar years to 2024, investors experienced a 10% fall in 30 of them.

Even significant falls of 20% may occur more than you expect – roughly every six years.

Despite these dips, markets have delivered returns over the 50 years analysed. So, holding your nerve during these sharp falls often makes sense when you take a long-term view.

3. Periods of “heightened fear” could be more lucrative

The Vix Index measures expected volatility in the US market– it’s often referred to as the market’s “fear gauge”. It can highlight when investors perceive there is a greater risk of losing money. For example, it last reached a significant peak in May 2022 in the aftermath of the invasion of Ukraine.

Schroders has assessed how your investments would fare if you sold assets during periods of “heightened fear” to hold your wealth in cash, and then shifted back to investments when the fear receded. Taking this approach when invested in the S&P 500 – an index of the 500 largest public companies in the US – would have yielded average returns of 7.4% a year between 1990 and 2024.

However, if you didn’t let fear affect your investment decisions and remained invested, you may have benefited from average annual returns of 9.9%.

So, even when it seems like investing isn’t a good idea because of the economic environment or geopolitical tensions, it could be worthwhile taking a step back to consider what’s driving your decision.

Contact us to talk about your investments

If you have questions about investing and how it could support your financial goals, please get in touch.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Inheritance Tax: How does the UK compare internationally?

More than 70% of Brits think Inheritance Tax (IHT) is unfair, according to a poll carried out by Tax Policy Associates in 2023. You might consider how other countries handle taxing assets when you pass away to be “fairer”, read on to find out more.

Over the last few months, you’ve read about how IHT works in the UK and some of the steps you may take to reduce a potential bill.

In the UK, IHT is a type of tax that’s levied on the estate of someone who has passed away if the total value exceeds certain thresholds. The portion of estates above the threshold may be liable for IHT at a standard rate of 40% in 2024/25.

Many countries have some form of IHT. Indeed, according to euronews, 19 countries in the EU levy some form of tax on inheritances, gifts, or estates.

So, how does the UK differ in the way that it taxes estates? Read on to discover how other countries tax assets after you’ve passed away.

Several countries have no form of Inheritance Tax

While many countries do levy a tax when passing on assets, there are a few that don’t have any form of IHT. For example, Austria abolished IHT in 2008, and Norway followed suit in 2014.

In the UK, modern IHT tax dates back to 1894 when an estate duty was introduced. However, there were different types of IHT going much further back. While there have been calls to abolish IHT in the UK, it’s not a step Conservative or Labour governments have taken so far.

The threshold for paying Inheritance Tax varies significantly between countries

Among countries that have IHT, the majority of estates fall under tax thresholds and aren’t liable.

As a result, taxes on estates typically make up a small proportion of total tax revenues. In fact, the Financial Times reports only four of the 38 countries that are part of the Organisation for Economic Co-operation and Development (OECD) derive more than 1% of their total tax revenue from inheritances, estates, or gifts – Belgium, France, Japan, and South Korea.

The threshold for paying IHT varies significantly. In the UK, in 2024/25, the nil-rate band is £325,000. If the value of your estate is above this figure, IHT might be due.

In contrast, a Belgium citizen might need to consider an IHT bill if the value of their estate is more than just €12,500 (£10,505) depending on the region they live and who their beneficiaries are.

On the other end of the scale, in the US, federal estate tax is only required if the value of the estate exceeds $13.61 million (£10.25 million), and only six states levy additional IHT.

Many countries tax the recipient rather than the estate

The UK is an outlier in how it taxes the assets of the deceased. The UK is one of a small number of countries that tax the estate and consider the total value, not how the assets will be distributed. Denmark and the US also take a similar approach.

In many other countries, rather than taxing the estate, the recipient is taxed. So, an IHT bill would consider the gains each recipient has made and their personal circumstances.

In a 2023 report, the Institute for Fiscal Studies stated that taxing recipients and considering their wealth would be “the most appropriate way of taxing inheritances”, if IHT aims to reduce the effect of inherited wealth on inequalities. It notes this would allow a “transfer of £500,000 to a millionaire to be taxed differently from a transfer of £500,000 from the same estate to someone who is poor”.

The majority of countries favour a progressive Inheritance Tax rate

Again, the UK is an outlier by having a flat rate of IHT. In 2024/25, the portion of your estate that is liable for IHT would be taxed at a standard rate of 40% in most cases.

In contrast, many other countries favour a progressive tax – where the tax rate is increased for estates that have a higher value. For example, in Denmark the IHT rate is between 15% and 25%, and in Belgium, it could range from 3% to as high as 80%. 

Many other taxes in the UK are progressive. For instance, you may pay a higher rate of Income Tax on the proportion of your income that exceeds the higher- or additional-rate thresholds. So, making IHT progressive could align it with other taxes.

Contact us to talk about Inheritance Tax

If you’d like to talk about your estate’s potential IHT liability and the steps you could take to reduce the potential bill, please contact us.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate Inheritance Tax planning.

Investment market update: September 2024

Economic data suggesting some developed countries, including the US, could fall into a recession continued to affect investment markets in September 2024. Read on to discover other factors that may have affected the performance of your investments. 

UK

Data from the Office for National Statistics (ONS) shows inflation remained stable at 2.2% in the 12 months to August. The figure is slightly above the Bank of England’s (BoE) 2% target.

Despite speculation that inflation data would lead to the BoE cutting interest rates, the Bank opted to maintain its base rate at 5%. While good news for savers, it means borrowers, including mortgage holders, are still likely to face higher outgoings when compared to 2021.

Many economists expect the BoE will make an interest rate cut before the end of the year. Indeed, investment bank Goldman Sachs predicts the interest rate will fall to 3% over the next 12 months.

GDP data showed the UK economy returned to growth in July after a plateau in June. However, the figures were disappointing, with just 0.5% growth in the three months to July 2024. 

There could be more positive news in the coming months though. Investment bank Peel Hunt optimistically said the UK economy is heading for “above-average growth” as inflation stabilises and consumer demand picks up.

A report from the Office for Budget Responsibility (OBR) provided a less cheerful outlook for the UK. The latest risk and sustainability report warned the UK, and other countries in the world, face long-term pressures, such as an ageing population, climate change, and rising geopolitical tensions.

In addition, the OBR said, based on current policy, public debt is projected to almost triple to more than 270% of GDP over the next 50 years. The comments highlight the challenging backdrop chancellor Rachel Reeves will need to consider as she prepares to deliver her first Budget on 30 October.

There was positive data released from the manufacturing sector. S&P Global’s Purchasing Managers’ Index (PMI) recorded the strongest month in two years. Both output and new orders continued to recover.

Yet, many businesses continue to face significant headwinds. Among those is UK shipbuilder Harland & Wolff, which owns the Belfast shipyard that once built the Titanic. The company entered administration in September.

Research also suggests that trade difficulties following Brexit could worsen. Aston Business School analysed the effect of the Trade and Cooperation Agreement on UK-EU trade relations, and found that trade is down by almost a quarter.

The FTSE 100 experienced ups and downs, including falling 0.6% to a three-week low on 4 September. Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Fresh worries about the health of the global economy have gripped markets, with the FTSE 100 far from immune.”

Europe

Eurozone inflation fell to 2.2% in the 12 months to August 2024. The news gave the European Central Bank the confidence to cut interest rates for the second time this year.

The Paris Olympics provided a short-term boost to the eurozone economy. A PMI output index increased for the first time since May in August 2024 to reach a three-month high of 51.0 – a reading above 50 indicates growth.

However, as the temporary boost of the Olympics fades, additional PMI data isn’t as positive. Indeed, HCOB’s flash PMI suggests the eurozone economy shrank for the first time in seven months in September.

The manufacturing sector in particular is struggling, with a PMI reading of 45.8 in August 2024. Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: “Things are going downhill, and fast. The manufacturing sector has been stuck in a rut.”

As the largest economy in the EU, the conditions in Germany can affect the bloc, and statistics suggest there are risks ahead.

Indeed, the Kiel Institute for the World Economy predicts Germany’s GDP will shrink by 0.1% this year and has halved its growth forecast for 2025 to 0.5%.

Statistics body Destatis reports industrial production in Germany fell by 2.4% in July – far more severe than the 0.3% fall economists had predicted. The automotive sector suffered the largest fall (8.1%) followed by electrical equipment (7%).

German carmaker Volkswagen has spoken about the challenges it faces. The company warned that it has a “year, maybe two” to adapt to lower demand. The economic environment has led to Volkswagen considering making unprecedented closures in its home market for the first time in its history as it tries to cut costs.

US

Inflation in the US fell to its lowest level since February 2021 in August 2024 to 2.5%. In response, the Federal Reserve cut its base interest rate from 5% to 4.75%.

The inflation and interest rate announcements led to the S&P 500 – an index of the 500 largest public companies in the US – jumping 1.5% on 19 September. 

Similar to Europe, data indicates the manufacturing sector in the US is struggling. Indeed, the Institute of Supply Management reported it contracted for the fifth consecutive month in August. The news led to a dip in the markets around the world at the start of the month.

Figures from the Bureau of Economic Analysis also indicate a business threat as the trade deficit increased by $5.6 billion (£4.19 billion) in July to $103.1 billion (£77.13 billion).

American company OpenAI, the firm behind ChatGPT, announced it was in talks to raise $6.5 billion (£4.86 billion) from investors at a valuation of $150 billion (£112.21 billion) – making it one of the most valuable start-ups in the world.

Asia

Investment market volatility in Asia highlighted how factors around the world can affect markets. On 4 September, Japan’s Nikkei lost 4.2% and South Korea’s Kospi fell 3.4% after investors were spooked by fears that the US could experience a downturn when poor manufacturing data was posted.

A survey of China’s manufacturers from Caixin suggests export orders were subdued in August and fell for the first time this year as it faced external challenges.

However, China announced stimulus measures aimed at boosting the economy and stock market, as well as supporting the property sector on 24 September.

The news led to stock markets across Asia-Pacific rising – China’s CSI 300 index was up more than 4%. In fact, the announcement led to world stocks hitting a record high when the MSCI World Stocks index increased by 0.3%. 

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The first-time buyer’s guide to saving a property deposit

Saving for that all-important property deposit can be a challenge for a first-time buyer, especially when balancing a high cost of living while trying to set aside money each month.

Of course, such difficulties have always existed, but young adults today face increasingly higher barriers to entry into the property market. Data from the Office for National Statistics (ONS) shows the average age of a first-time buyer in the UK is 36, up from 32 in 2004.

If you are saving for a property deposit, this guide will walk you through all the available options and the steps you can take to help you buy your first home.

Download your copy of ‘The first-time buyer’s guide to saving a property deposit’ now to discover:

· How much you need to save for a property deposit

· Practical tips that could help you save more effectively

· Why a mortgage in principle could be useful for setting a goal

· How a family mortgage works and if it could be an option for you.

If you’re preparing to buy your first home, we could offer you guidance throughout the process. Please contact us to speak to one of our team.

The gender protection gap: Do you have enough cover?

Research suggests that women are less likely than men to take out income protection. This trend could mean women are more vulnerable to financial shocks and is a useful reminder to check how you’d cope if the unexpected happened.

According to a report from Royal London, while women are more likely to manage everyday spending for a household, it’s typically men who will make decisions relating to long-term finances, including financial protection.

There are several reasons why women often don’t take a leading role in long-term finances, including a lack of confidence. The study found 21% of women said they weren’t confident in their ability to choose an option that was right for them compared to 12% of men.

In addition, women are more likely to take time away from work or work part-time to look after young children. After having children, 62% of women said they’d considered leaving the workforce or working part-time due to childcare responsibilities. 42% of men said the same.

These factors, among others, mean there’s often a gender gap in finances. Women, for example, usually have far less saved for their retirement when compared to their male counterparts. However, one area you may have overlooked is the effect it can have on financial protection.

Just 16% of women homeowners have income protection in place

The Royal London report found a lack of financial protection that could leave both men and women in a difficult position if they faced a financial shock.

Financial protection is an umbrella term used to describe several types of insurance that would pay out when certain conditions are met. For example, life insurance would pay a lump sum to your loved ones if you passed away during the term. As a result, financial protection may act as a safety net when you or your family need it most.

Income protection would pay out a regular income if you’re unable to work due to an accident or illness. It will usually pay a portion of your regular salary until you can return to work, retire, or the term ends. So, if your income unexpectedly stops because you can’t work, it could help you meet essential financial commitments.

Becoming a homeowner is often a trigger for considering income protection as you might think about how you’d meet your mortgage repayments if something happened.

While almost a quarter (24%) of male homeowners have income protection in place, the figure falls to 16% for women.

Worryingly, this is despite data suggesting women are more likely to need to take time off work. Between the ages of 30 and 65, men have a 26% chance of needing to take two months or more off work, this rises to 37% for women.

Assessing how you’d cope if your income halted unexpectedly could help you see if you’d benefit from income protection and how much cover you might need.

If you take out financial protection, you’ll need to pay regular premiums to maintain the cover. The cost of the cover will depend on a range of factors, including the potential payout and your health, and may vary between providers.

3 useful questions to help you understand your financial resilience

Understanding your financial resilience might help you assess your ability to overcome a financial shock. These three questions could be a useful place to start.

1..What are your essential outgoings?

Getting to grips with your budget could help you assess the challenges you might face if your income stops. Writing down your essential outgoings, from your mortgage to grocery shopping, is a simple way to calculate the income you need each month to keep up with financial commitments.

You might also want to consider costs that aren’t essential but are important to you or your family. For example, you may want to include private school or club membership fees. This could help you understand the cost of maintaining your lifestyle.

2. Does your employer offer sick pay?

In 2024/25, Statutory Sick Pay is just £116.74 a week and is paid for up to 28 weeks. As a result, it’s often not enough to cover essential expenses alone.

However, many workplaces offer a sick pay policy that would continue to pay you an income if you’re unable to work. Checking your contract, reading your employee handbook, or speaking to HR might be useful when you’re reviewing your financial resilience.

There are two key things to check if your employer offers sick pay. First, would you receive your usual salary or a portion of it? Second, how long would they pay an income for if you’re unable to work?

3. What financial safety net do you already have in place?

You may already have taken steps to create a financial safety net. Perhaps you have an emergency fund in a savings account you could dip into if your income stopped, or have other assets you could use.

Taking some time to work out how long your safety net would last could be a useful exercise. If you have enough in your emergency fund to cover three months of essential expenses, you might decide that income protection that pays out after this period would offer you peace of mind.

It may also be important to note how using other assets could affect your long-term plans. For instance, if you intended to use your savings to fund a home improvement project or allow you to travel when you retire, falling ill could risk these goals.

Calculating your income gap

With the information from the above three questions, you can start to calculate the income gap you might face if your income unexpectedly stopped. It may put you in a position where you can start to take steps to reduce the risk of falling short, whether that’s building up your savings or taking out appropriate financial protection.

Contact us to talk about your financial plan and protection

The Royal London research found that women are less likely to seek professional financial advice too. Just 16% of women have spoken to a financial adviser, compared to 23% of men.

As financial planners, we could help you manage your finances in a way that aligns with your goals, including taking out financial protection if appropriate. A financial plan may help you feel more in control of your finances and boost your confidence. Please contact us to arrange a meeting.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.