Insure Your Finances Against A Recession
The British Chambers of Commerce (BCC) has warned that Britain is already in a recession and that unemployment rise by 350,000 by next year
Britain may not technically be in a recession but for many it will not feel that way. Households are already tightening their belts – mortgage approvals are at record lows and anecdotal evidence suggests that people are staying in rather than spending a night on the town.
A recession is official if the economy shows two consecutive quarters of negative growth but economists reckon that the next quarter's figures will make it a reality. Higher unemployment is also on the cards following the British Chambers of Commerce (BCC) warning that confidence has collapsed in both manufacturing and service sectors. This could see unemployment rise by 350,000 by next year, the BCC said.
But there are numerous ways you can insure against your financial situation coming under pressure.
Payment protection insurance (PPI)
Specifically linked to a personal loan, credit card or other credit agreement often with benefits going direct to the company providing the financial service which means payments should not affect your entitlement to social security benefits. You are covered in case you are too ill or injured to work or are made redundant. The average cost of cover sold by the company providing the credit arrangement is around £18 a month for every £100 of monthly cover. So, to cover monthly payments of £300 you would have to pay monthly premiums of £54. If you want peace of mind, by all means consider taking out cover. But taking it from the loan provider is expensive and can add thousands of pounds to your loan. Alliance & Leicester has just been fined £7m for misselling PPI. Consider opting for an independent provider such as paymentcare.co.uk or britishinsurance.com.
Mortgage payment protection insurance (MPPI)
This will pay your mortgage for a year – sometimes two – if you are too ill or injured to work or are made redundant. Just 2.3m of the 11.7m mortgages currently outstanding are covered by this kind of insurance. Seven out of ten policies are sold by the lender and will cost over £5 a month for every £100 of cover. Buying independently will save you money. David Hollingworth, a spokesman for mortgage brokers London & Country, said: "This is often regarded as expensive cover and the take up is low."
Short term income protection
This differs from PPI and MPPI because it is linked to your earnings and any payout is made to you direct. It can therefore be used to cover all your major outgoings from mortgages to the gas bill, although it could affect your entitlement to social security benefits. Cover – which is usually based on between 40 per cent and 60 per cent of your gross income or up to 75 per cent of your net income – is intended to pay out if you are too ill or injured to work or are made redundant. Maximum payout can be as much as £2,500 a month though some providers have a top payout of just £1,000.