ARE you a ‘JAM’? This is the latest acronym to emerge from the current period of Tory austerity. It describes those at the not-so-well-off end of the social scale – those who are ‘Just About Managing’.
On Wednesday the new Chancellor of the Exchequer, Philip Hammond, will make his autumn statement, in which he is expected to announce measures agreed with Theresa May to help those very people, the JAMs.
He is expected to activate the Tory election pledge to raise the income tax personal allowance to £12,500, and to increase the 40 per cent higher rate tax threshold to £50,000.
He is also expected to continue the freeze in fuel duty, make cuts to air passenger duty, and provide childcare subsidies.
This is all good news.
But when even those in work are ‘jamming’ to the point where the government concedes palliative measures are needed, it’s a timely reminder that times are hard, and that we need to take action to protect ourselves, financially speaking, if our family income and our livelihood are jeopardised by a health setback, or even worse.
This is possible, of course, using the mainstays of family protection: life insurance, critical illness insurance, and income protection.
Our greatest hindrance to getting these types of cover in place is the simple phrase: “It will never happen to me.”
Well, courtesy of those nice people at insurance and pensions provider Royal London, here are the numbers that show just how likely it is to happen to you.
If you are a 30 year old non-smoking man, then between now and when you turn 65 you stand an 8 per cent risk of death, a 16 per cent risk of suffering a serious illness, and a 32 per cent risk of a health setback that will take you off work for two months or more.
Now, personally, if I thought I stood a one-in-three chance of a health setback that would take me out of the game for over two months, I’d probably stay under the duvet that day.
So how well do we cover ourselves against the unexpected?
The fact is, only 37 per cent of UK adults have life insurance, only 11 per cent have critical illness insurance, and only 7 per cent have income protection.
The Canadian teacher and writer Stephen Butler Leacock famously summed up our attitude to life insurance when he said: "I detest life-insurance agents. They argue that I shall someday die - which is not so."
Well, you can gamble that you will never require critical illness or income protection, but you must admit with certainty that one day, it will be time to cash in your chips, and your life policy with them.
And remember: you don’t buy life insurance because you are going to die, but because those you love are going to live.
As for critical illness insurance, all policies cover the ‘core conditions’ of cancer, stroke, heart attack, tumour, and MS, and the need for certain severe medical procedures such as a heart operation or major surgery. Many policies cover many more illnesses and conditions, and every policy is different, so it is important to shop around and choose carefully.
And before you say “It’ll never happen to me” to critical illness, believing perhaps that critical illnesses only befall the elderly, well, the insurers tells us that the average age for critical illness claims is just 47.
Another way of insuring your income is Income Protection Insurance or IPI. This is designed to provide a replacement income in the event that you are forced out of work due to a long-term illness, and it pays out alongside other benefits you may receive.
IPI is worth thinking about, when you consider that statutory sick pay from your employer is just £88.45 per week, and is payable for the first 28 weeks of your convalescence only.
For a person on a salary of £40,000, that would mean income cut by nearly 85 per cent, if they had no IPI to fall back on.
The fact is that if a child, a spouse, a life partner, or a parent depends on you and your income, you need insurance to cover your life, your health, and ultimately your wealth, ie your salary.
Just to prevent, as the Prime Minister might say, anyone getting into a ‘JAM’.
:: Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 71886005
