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Be prepared

Scottish Provident senior product development manager Jennifer Gilchrist says in such uncertain economic times, people would be wise to consider protecting their income, should they suddenly find themselves out of work.

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No one can deny we live in difficult times. The country is still recovering from the effects of a punishing global recession, inflation is rising once again, a staggering 2.47 million people are out of work and our future prosperity is in the hands of a Conservative/ LibDem coalition that will take a good few months to find its feet.

Even the most optimistic of people would agree this is a challenging outlook. Adding to the feeling of unease is the fact that 18,195 companies have gone into liquidation over the past year, while almost 140,000 were declared insolvent, according to figures compiled by the Insolvency Service to the end of the first quarter, 2010.

The reality is we are in a world characterised by political and economic instability and that creates a climate of uncertainty.

People are unsure if promises made will be kept, what tax changes will be introduced, which businesses will thrive in the new environment and what impact that will have on the numbers of unemployed.

History warns us to be on our guard as unemployment can often increase after a general election.

Even after Labour’s landslide victory in 2001 the number of jobless people rose from 1.47 million in June to 1.52 million by the end of the year while a 0.4 per cent rise in unemployment followed the party’s 2005 election victory. Is there any reason to suggest it will be different now we have the first coalition for 65 years?

The new-look Government appears to have gelled so far but the question is what happens when the honeymoon period is over. Some fear that the reality of immediate cuts in public spending will provide its first real test and reveal whether it is built on sand or solid foundations.

The emergency Budget planned for June 22 is expected to throw more light on drastic plans to make huge savings. Where exactly will the axe fall? How much of an impact will these reductions have and what will be the effect on businesses and individuals of other policies that may be introduced? There are so many questions.

Such cover is not meant to be permanent but provides enough time for people to decide what direction they want to take

Against such an uncertain backdrop it makes sense for people to safeguard their families’ futures by at least considering a range of protection policies designed to kick in should they find themselves out of work. As well as much-needed cash to pay the bills, it also provides them with the breathing space to consider their options instead of being forced into making rash decisions.

This is particularly relevant, given that the jobs market is not as buoyant as it was just a few years ago.

Those unlucky enough to find themselves looking for work will find it more difficult to find alternative employment than they would have before the country was plunged into recession. Even companies that have so far emerged relatively unscathed are likely to be reticent to take on more people unless it is absolutely necessary.

So, with fewer and fewer providers offering unemployment cover these days, advisers may be inclined to recommend any that still offer it. It is important that advisers and their clients go with a provider that offers a solid track record.

This may prove tricky as very few companies publish claims in this area but it’s important that promised benefits are delivered when people need it the most.

Of course, such cover is not meant to be permanent but even if it lasts a couple of years, this should be enough time for them to turn their lives around and decide on the direction in which they want to go.

This could mean entering a different type of employment, which may require some additional training and qualifications.

However, while unemployment cover may be particularly attractive at the present time, it is by no means the only form of protection that should be considered.

Income protection, critical-illness cover and life insurance must also come into the equation.

Despite the obvious benefits, the various policies designed to protect income are sold, not bought. In fact, a survey carried out by Scottish Provident revealed less than one in 10 workers had any form of unemployment cover.

That is why financial advisers have such important roles to play in the process. Their job is to understand the client, assess what they already have in place, find out their future plans and decide what combination of protection policies is most suitable.

People will certainly not come looking for such protection. Therefore it is up to the adviser to highlight the potential risks to their lifestyle and come up with a suggestion for the appropriate amount of cover they need.

So how much is enough? What type of protection policies should be taken out? This obviously depends on the individual but the simple answer is to have a bit of every available policy in order to ensure they are covered no matter what happens.

Of course, what usually dictates the scope of protection is the client’s budget. If money is too tight for a comprehensive range of cover, then ensuring there is enough to provide for their mortgage payments will at least keep the roof over their heads.

Whatever a client’s needs, the message is simple – people should not underestimate the value of protecting their income. For a relatively small outlay, they can rest easy that both themselves and their families will be covered should the worst happen.

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