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Are you ready for an unexpected financial shock?

As a nation, we don’t want to think about the worst, but the unfortunate truth is that there’s a very real chance something could happen to any of us that really rocks our finances.

Bereavement, losing a job, illness or accidents can affect us in many ways, but they can also all have a significant impact on the money we earn and have available to spend.

In fact, new research today from the Money Advice Service has found one in three of us have experienced a shock to our finances thanks to one of these in the past five years. Yet only a third of those had protection insurance to cushion the blow.

It’s not just your own life that could be affected by a sudden loss of income. Two thirds of UK adults have someone who depends on their salary such as children, a spouse or even a parent.

So how can you protect the lifestyle of you and anyone who relies on you from money traumas?

Build a rainy day fund

One option is to build up a rainy day fund to cover unexpected costs, and having access to at least one months’ expenses gives a bit of a buffer.

This might seem a big ask, but people to manage. Our survey found two in five people think they have enough in savings to manage. To be even more comfortable while you readjust to the situation, try for enough money to cover three months’ essential outgoings.

However, if the worst really does happen, the total cost of your savings might not be enough to cover your needs.

Consider protection insurance

To ensure you and your family can live how you want to if you lost your income, you might want to buy protection insurance. Though this type of insurance won’t be suitable for everyone, our research found one in five hadn’t even considered it as an option.

Some policies pay monthly, while others offer a lump sum. Any pay-out could help cover things like mortgage payments while you’re not working or adjustments to your home as a result of a life changing injury.

Depending on what you think is the biggest risk, there are different forms of protection insurance. The most common are:

  • Income protection insurance, which provides support if you are unable to work
  • Life insurance, which gives financial support to dependents if you die
  • Critical illness cover, which supports you if you are diagnosed with a serious illness
  • Short-term income protection, which might help if you suddenly found yourself unable to work for a short time.

Struggling to find the money to put into savings or spend on insurance?

The biggest reason our survey found for people not taking out income protection insurance was the cost, with three in 10 saying they can’t afford it.

If that’s the main factor stopping you, it’s worth taking a look at your finances to see if you can find the money elsewhere. Look at our outgoings. Can you ditch your daily coffee, or spend less on nights out?

What do you think?

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  • benedict yongo / 14 November 2015

    other sources of income are good too for wholesome business growth

  • Steve Devine / 14 October 2015

    Short term income protection is an affordable option if you want to protect your income and family lifestyle

  • Ellen / 20 September 2015

    Remember if it is a want, you may not need it as you do without it this long

    If it is a need save for it therefore it does not work more than you paid for it eg. No credit card interest rates apply

  • autumn / 20 September 2015

    I have always lived on less money by paying myself 1st and putting money away fo a rainy day this advice that my grandparents gave me has served me well over the decades I am not in debt and I will not let the taxman get his grubby hands on my cash which I have been so carefull to save I've payed my taxes and what I have saved is mine it was earned legally