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Planning for bumps in the road

Predicting the future is impossible, but it helps to be financially prepared when the unexpected happens.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in. These articles are intended for employers and HR professionals, not for individual investors.

Encourage your employees to plan for future challenges and to get the right financial support in place when they need it the most.

To help you to help them, we’ve put together a list of the top 6 items that employees should consider in planning for the future.

This list is designed to help your employees make their own informed decisions, but it isn’t personal advice. If they are unsure of a course of action for their circumstances, they should seek financial advice.

1. Emergency fund

Priority number 1 is building an emergency fund to cover 3-6 months’ worth of essential expenses. This is the bare necessities - the things you can’t live without.

If an employee has left employment, or is in retirement, their emergency fund should increase to 1-3 years of expenditure. This should be held as cash, in an easy access savings account so it can be accessed quickly and without penalty, reducing the likelihood of turning to credit for an unexpected financial event.

2. Emergency spending plan

Encourage employees to review their direct debits and fixed costs. Do they have subscriptions that are no longer needed or luxuries they can live without?

They should aim to review their emergency fund and spending plan at least twice a year. And remember that current higher inflation means the cost of essentials will be rising, so their emergency fund may also need to be increased.

3. Consider income protection insurance

Income protection insurance does exactly what it says on the tin. If your employees can’t work because of injury or illness, after a deferral period it will provide between 50 – 70% of their usual pay each month up until they retire, return to work or pass away. Alternatively, some will cover your employees for one or two years, which is a less valuable benefit, but tends to be cheaper.

Employers often provide income protection insurance. If your organisation does, it’s worth making your workforce aware of this benefit so they don’t overspend on insurance, as they’ll never receive more than 70% of their income, even with a number of different policies.

4. Write a will

Nobody likes to think that they won’t be around forever. Perhaps that explains why only two in five homeowners have a will.

But dying without a valid will could mean your family inherits a problem. Your estate will be divided according to a fixed set of rules, irrespective of your intentions, and that means it might not be gifted to those you want to leave it to.

Encourage your employees to make a will and to review their instructions at key life events. For instance, marriage invalidates any existing will and could mean their loved ones miss out.

5. Powers of Attorney

As we live longer there’s a chance we may develop a condition that affects our ability to make decisions either for a temporary period or permanently.

It’s worth considering a power of attorney or a Lasting power of attorney (LPA), which allow someone you appoint to make those decisions for you. You can have a power of attorney for financial and health decisions, and it’s worth encouraging employees to have both.

6. Don’t forget life insurance

If employees have someone who relies on them, this is a good way to protect them after their death, and it could be much cheaper than you think. The average monthly fee for every £100,000 of insurance is £10.96.

The price depends on several factors: age, health, occupation, how much cover is needed and the length of the term. Generally, the younger the applicant, the cheaper the premiums.

Once life insurance is in place, it’s important to review it in line with any changes, such as having children or moving somewhere more expensive.

If this is provided as part of an individual’s benefits package, make sure it’s signposted so employees don’t take out more than they need. And be sure to highlight that any policy through an employer will end if an employee stops working for the company.

Find out more about our financial wellbeing service here

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in. These articles are intended for employers and HR professionals, not for individual investors.

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