What If You Lost Your Job Tomorrow?

If your income suddenly stopped, for how long could you pay your bills? We expose the gaping holes in the state's safety net.

According to recent research, more than half of British adults (52%) could get by for just seventeen days if they were to suffer an unexpected loss of income.

Specialist accident and health insurer Combined Insurance interviewed two thousand people and discovered that a typical Brit has monthly outgoings of over £950. However, almost two in five of us (38%) have no savings at all, and over half have £500 or less squirreled away for emergencies. Only three in ten people have more than £3,000 put aside to pay their bills should they lose their income.

The findings of this survey show that millions of UK households are living on the edge when it comes to their household finances. For example, almost half of twentysomethings (48%) have nothing saved and could survive for just four days should they lose their income. However, further along the age spectrum, three in seven of the 'thrifty fifties' (43%) have more than £3,000 standing by to meet any unforeseen costs.

What's more, Londoners in particular are skating on thin ice: a third have nothing saved, yet, with average monthly expenses of almost £1,100, a typical Londoner could survive for just 27 days on their nest egg. Also, self-employed Brits are living dangerously, as more than half (51%) have less than £2,000 stashed away.

To be honest, this is madness, because each of us needs something to rely on and to deflect 'the slings and arrows of outrageous fortune' (Hamlet). What's more, if you don't have enough salted away in a high-interest savings account, then you're at the mercy of the State, which isn't known for its generosity.

For example, if your company were to go bust, you were made redundant or were dismissed, you'd soon find out how difficult it is to get by on State benefits. For a single person aged 25+, Jobseeker's Allowance is a mere £57.45 a week, which wouldn't even cover most people's mortgage repayments or rent.

Furthermore, homeowners who are out of work or laid low by an accident or sickness get a shock when they discover how pitiful government support for mortgage borrowers really is. As I explained in When Mortgages Turn Mean, there is precious little help on offer to unemployed or sick borrowers.

Here's the reality: for mortgages taken out after 1 October 1995, you get NO help with your repayments for 39 weeks (unless you're over sixty). What's more, Income Support for Mortgage Interest (ISMI) only pays your mortgage interest, with no payment towards capital repayments on a repayment mortgage.

ISMI also ignores any payments to mortgage-linked savings and protection plans, such as mortgage endowments, ISAs and life insurance policies. Even worse, it only covers the interest on the first £100,000 borrowed, so homeowners with larger loans lose out, plus it only covers home-purchase loans, so second mortgages and secured loans are your problem.

In addition, ISMI is calculated based on a standard interest rate, not the rate that you pay, so your monthly ISMI benefit could fall short of your actual interest payment. Of course, ISMI is means-tested, so you may not get a penny towards your mortgage if you have savings of £8,000+ or have a partner who works 24 or more hours per week.

Frankly, ISMI is no safety net at all, which means that homeowners should not rely on the government when they fall ill or lose their jobs -- you must fend for yourselves! One answer is to buy income protection: insurance against long-term sickness or disability -- you can get a competitive quote in the Fool's Insurance centre.

Another alternative is to buy short-term protection against accident, sickness and unemployment, known as mortgage payment protection insurance (MPPI). However, you should NEVER buy MPPI from mortgage lenders, because they charge an arm and a leg for this cover, as I warned in The Shocking Cost Of Mortgage Cover. Instead, shop around for a stand-alone MPPI policy; the cheapest providers include British Insurance, Helpupay, Paymentcare, and the Post Office.

Finally, start saving, will you, for heaven's sake? If you can't save, you can't survive in this modern world!

More: Use the Fool to compare mortgages, compare savings accounts and compare insurance quotes!