Income Protection Insurance
State benefits vary according to individual circumstances, but the one thing that can be guaranteed is that they do not finance too many of life's luxuries. Indeed they will enable you to do nothing more than subsist.
Most people who do not have a substantial investment income to tide them over are therefore potentially vulnerable to severe financial difficulties.
It's all very well resolving not to go out in the evenings and vowing to stop buying new clothes, but in practice you will only be tackling the tip of the ice-berg.
Whatever savings you have tucked away are likely to be swallowed up in only a few months by the mortgage payments alone, not to mention other essential outgoings like utility bills, food, and travel expenses.
It is possible to provide yourself with at least a measure of protection against such a dreaded scenario by taking out "income payment protection insurance".
This will pay out a monthly benefit for a maximum of one year if you are unable to work as a result of involuntary unemployment, accident or sickness.
Premiums will not be affected by factors such as your age, medical history and smoking habits. The only determinants of price are the amount of income payment protection insurance cover you require and the competitiveness of the provider you buy from.
The best income payment protection insurance providers can charge as little as £5 a month per £100 of monthly benefit, but even they won't allow you to insure your entire income.
There will typically be a maximum benefit limit of £1,000 a month or half your income, whichever is the lower. But at least you may be able to cover the bulk of your essential outgoings.
Even those who enjoy only very limited sickness cover via the workplace may decide that income payment protection insurance represents poor value if they have ongoing health problems. This is because income payment protection insurance policies exclude pre-existing conditions and chronic conditions, with these long term illnesses there is no realistic chance of making a significant recovery.
Bad backs and stress related illnesses like anxiety and depression are also excluded unless a consultant actually certifies that they are sufficiently serious to prevent you from working.
Health issues apart, self-employed people should realise that income payment protection insurance only covers them if they actually cease trading, as opposed to merely experiencing a sticky patch.
Even employed people need to be aware that they will not be covered for voluntary redundancy or for job losses that they knew were lying around the corner at the time they took out their income payment protection insurance policy.