Who would catch you?

Young girl preparing cake mix in kitchen, mum showing baby

You probably walk right past a fire extinguisher every day, without even noticing. Now, imagine you had to use it one day and when you pointed it at the flames and squeezed the handle, only a drop of water dribbled out of the nozzle.

Legislation makes it mandatory to service fire extinguishers so they’re always in working order and people aren’t left in this dangerous situation - but what’s the link to financial security?

The point is that when you see a fire extinguisher, you simply expect it to work. It seems that many women have a similar perception about the role that the state, their employer and their savings would play if they were unable to work because of accident, illness or disability.

The questions are:

  • would Statutory Sick Pay provide what you need it to?
  • what would the government actually provide?
  • could you really muddle through on savings?  

Statutory Sick Pay

The government has set a minimum level for Statutory Sick Pay. If a woman was out of work due to illness, she’d be entitled to at least £88.45 a week, paid by her employer, for up to 28 weeks.

Your employer isn’t obliged to pay an income after this period, even though the treatment and recovery times for many illnesses can be a lot longer.

The amount paid may not cover your financial commitments. According to the Office for National Statistics, average earnings over a 28-week period total £13,440, but Statutory Sick Pay would only provide £2,476.60. That leaves a significant shortfall of £10,963.40 – and it could have a real impact on the standard of living that you and your loved ones could maintain.

Employment and Support Allowance

For those people who are self-employed, you can’t claim Statutory Sick Pay, but you are entitled to claim Employment and Support Allowance (ESA) from the government.

If you’re employed you can also claim ESA, but not if you’re receiving Statutory Sick Pay.

There are two types of ESA:

  • contribution-based ESA – usually you get this if you’ve paid enough National Insurance contributions; and
  • income-related ESA – usually you get this on its own or on top of contribution-based ESA, if you’re on a low income.

Eligibility for ESA depends on your age, other benefits you receive, your National Insurance contributions and the severity of your illness or disability. Other factors include your personal income, your partner’s income and the level of savings you have.  

Assuming you’re eligible, contribution-based ESA would pay up to £73.10 a week (up to £57.90 if you’re under the age of 25) for 13 weeks while you complete a Work Capability Assessment. Following this assessment, you will be put into either a work-related activity group or a support group depending on how limiting your illness or disability is.  

If you’re in a work-related activity group, you’ll receive £102.15 a week for one year. You may be able to re-apply for further support depending on your National Insurance contributions and whether or not your health deteriorates.

If you’re in a support group, you’ll receive £109.30 a week and there’s no limit to how long you can claim ESA.

If you qualify for income-related ESA the amount you receive will depend on your circumstances and there’s no time limit to how long you’ll get it for. You may also qualify for income-related ESA if you no longer qualify for contribution-based ESA.

Unfortunately, it’s complicated and there are many variables, but let’s assume you’re eligible for contribution-based ESA, and you’re over 25 – you’ll receive £73.10 for 13 weeks. You then go into a support group and receive £109.30 a week for the remainder of the year – 39 weeks.

That’s a total of £5,213, averaging out at a little under £435 a month. How does that compare to the self-employed income you normally earn? Given that research suggests it costs £1,634 a month to run a house, relying on ESA is unlikely to let you meet your financial commitments.

So, although the government does offer some support, it’s not quite the financial crutch that many might assume.

What about savings?

Our ‘Protection matters: does women’s financial planning match their priorities?’ research found that 42% of women would rely on their own savings if they couldn’t work for six months. But the reality is that a third of women have no savings at all or simply don’t know how long they’d last.

Even if you’ve got some money tucked away for a rainy day, is it really enough? Research from Macmillan Cancer Support found that cancer generates additional monthly costs of £570 for sufferers.   

These additional costs can make it easy to underestimate how long savings would last. And as we’ve seen, the support offered by your employer or the government is unlikely to provide the necessary level of income to maintain you and your family’s lifestyle.

Knowledge is power, so we’ve created a personal liability audit form and a business liability audit form to let you see exactly where you’d stand financially if you couldn’t work.

By completing this simple audit with your financial adviser, you’ll be able to see your outgoings and how’d they be affected by illness, incapacity or death. You’ll also be able to see how your income would be affected and highlight any likely shortfall.

Having an understanding of your financial situation and knowing how it could change should something happen, you’ll be able to see how protection cover could help you avoid any financial shortfall. Protection truly is an invisible safety net - allowing you to make sure that you and your loved ones can maintain the same standard of living during difficult times.   

If you just assume everything will be ok, then you could be in for an unwanted surprise at the worst time possible.