Could You Live On State Benefits?
If you were off sick for months, how would you keep the wolf from the door? This report suggests that relying on state benefits is unwise.
According to new research from Nationwide Building Society, most homeowners would not be able to cope financially if illness or injury caused them to be out of work for many months.
Indeed, Nationwide found that more than three in five homeowners (61%) said they would not be able to survive financially if out of work for six months due to accident or sickness. Workers aged 34 and under were most worried, with three-quarters (75%) admitting that they would struggle to pay all their bills. For those over 55, this proportion dropped to three-sevenths (43%).
A shaky safety-net
On average, homeowners believe they need just short of £300 a week to survive without their usual income. However, the big problem is that state sickness benefits are much lower than this. Employment and Support Allowance (ESA, which replaced Incapacity Benefit and Income Support on 27 October 2008) pays up to £89.50 a week. Given that 98% of those questioned needed more than £100 a week to survive, it's clear that ESA is a desperately weak safety-net.
It's also very telling that workers have no clue as to just how much they would be entitled to while off sick. Almost nine in ten workers (88%) had no idea of how much ESA they would receive in lieu of income. Nevertheless, in 2007, over 2.4 million people aged between 18 and 64 claimed Incapacity Benefit. Of these, four-fifths (80%) were claiming for more than six months, and two-fifths (40%) were claiming for more than five years.
On what can you rely?
So, while long-term sickness may never happen to you, it does affect millions of people. With state benefits alone insufficient to maintain a decent standard of living, Nationwide found that we hope to fall back on a combination of the following:
1. Savings and investments. Almost half (49%) of those questioned would use this cash cushion. Alas, Nationwide also found that one in four of us (24%) saves nothing and less than half (47%) save regularly.
2. State benefits. Nearly a third of us (32%) would rely on the State, but would still struggle to pay monthly mortgage repayments and other household bills.
3. Friends or family. More than fifth (21%) would tap our relatives and friends for cash, but they may also be strapped for money.
4. Insurance policies. Two in nine workers (18%) would claim a tax-free monthly income or lump sum from protection insurance policies.
5. Selling their home. One in six (17%) would consider selling their home to make ends meet. However, falling house prices and the reappearance of negative equity make this a tough call.
Sadly, it's quite clear that -- should the unexpected happen -- few of us have enough cover in place to see us through an extended period of illness. Although we may believe that we could muddle through, it is not enough to rely on the State, family or friends. In reality, the only person able to build a sufficiently strong safety-net is you.
As with all money-management challenges, the best thing you can do is to plan ahead for rainy days. For example, to build your own safety-net, you could look into the following private insurance policies:
- Income Protection. This pays out a tax-free monthly income if you are unable to work due to illness or injury. For more information on this insurance, read Look After Your Greatest Asset
- Critical Illness Cover. This pays out a tax-free lump sum on diagnosis or treatment of a number of serious medical conditions, such as heart attack, cancer, stroke, etc. For more information on this insurance, read our guide to critical illness.
- Payment protection insurance (PPI). This meets the monthly repayments on a mortgage, personal loan, credit card or other debt if you are unable to work due to accident, sickness or unemployment. However, lenders charge extortionate premiums for PPI, so do shop around.
Finally, another option would be to rely on credit to make ends meet during tough times. However, this can be an extremely expensive option, given that a typical credit card charges a yearly rate of almost 18% APR on purchases. Likewise, unapproved overdrafts incur rip-off fees and sky-high interest rates. Remember that the road to financial Hell is paved with plastic cards, so don't become overly reliant on yours...
More: Get quality quotes for insurance | There's Snow Business Like Insurance | Is Unemployment Insurance Up To Scratch?
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Ok - trying to get this discussion back on topic if you find yourself on benefits or with the prospect of having to live on benefits here are some dos and donts that may help. These apply to everyone - married or single, with kids or without. Granted not all of them will relevent to everyone and many of them you will have seen before but it never hurts to have a reminder! DONT expect to hear immediately that your claim has been approved - it can take a few weeks! For this reason try to provide as much paperwork as is asked for as soon as possible. DO claim as soon as you need to and keep track of your claim by (politely)asking staff either over the phone or face to face if you have not heard after 7 days. DO ask for a reciept and or a stamped photocopy of any sicknotes or other paperwork origionals you need to hand in as a precaution. I find it best to take them along to the office whenever possible so you can say who it was you saw and when. DONT get angry with the counterstaff - they are the only frontline of the system and if you explain things in a calm manner will be much more helpful!! DO make sure that you claim any medical expenses you may be entitled to eg NHS excemption certificates and travel costs to appointments. DO make sure you claim any school meals etc you are entitled to - this can be via the school direct or through the local authority. DO make sure you claim housing and council tax benefits where applicable. DONT be afraid to accept the help on offer - this is hopefully only a temporary state of affairs remember and accepting help does not make your a scrounger or a lesser person - thats what they system is there for. DO go on any suitable courses on offer - this alwasy looks good on your cv and shows you are not just sitting at home doing nothing as the myth goes. DONT expect to continue with the same lifestyle. If you are not already now is the time to start living within your means. DONT ignore your debts!!! Get in touch with people you owe money to and explain your new circumstances. Alternatively contact organisations like citizens advice who can help you prioritise your debts and negotiate with them on your behalf. DO work out a new budget - it may mean cutting back a bit on some areas and being a bit more creative in others. For example if you can walk to the shops one way saving £2 bus fare then thats a couple of food items you can buy extra. Every little adds up! Add a bonus - walking is good for you as well. DONT look at getting into debt for household goods - there are decent second hand items out there and the Freecycle network is a great way to get 'new to you' items although it must be said that acces to transport is a must for larger items generally. DO try to use the car less. If the school is only a few streets away try walking with the kids instead (obvious but not always done!!) Walk to the shop instead of driving when you only need a few things. Again you will save money on petrol and be fitter for walking. And lastly DONT give up. Use the time you are not working to review your cv and improve it, take up a new hobby - even if its only walking the dog more, or reading books you havent had time to when working. When you go for your next interview and they ask you what you do with your spare time this will go down so much better too as they can see you have been keeping mentally and physically active. There are so many more things but the key is to reamin as positive as possible. Try to look on it as the old lemons and lemonade scenario. Make it a game for the kids as well - looking for the lowest prices on shelves also helps with maths work and getting preteens/teens to add bits to or adapt clothing aka customising means you save money on new clothes and they get something unique to them.
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Fedup, you seem to have very little faith in mankind. I'm sure the fact that accidental damage/loss/theft etc etc may happen has been taken into account and there will be finaincial penalties in place for those who choose not to return thier laptops. Also your sister is not the only single parent out there who works - but jobs can be difficult and hours need to fit in with school times. I worked for many yrs as a midday in my local school for the grand sum of £39 a week. Due to benefit regulations that I was allowed to earn only £20 a week without losing benefits, in effect this meant i actually worked for half the money the other staff got as the rest was taken off any benefits recieved. Pay rises did not affect me - i was still only £20 a week better off regardless. But i enjoyed my job - especially the school trips when i worked the whole day as a volunteer - and £20 is £20 at the end of the day and it allowed us to buy things we may not have been able to afford otherwise. I left to take on a fulltime job in a craft shop - my ideal job - but i had to leave due to some areas of my duties agraviting my health conditions. Since I will not be able to to the same type of work again, i have been retaining myself to work in ict and adult education. The work im looking into may end up being part time and sessional or it may be that i end up looking for something i can do from home - who knows. But what i am NOT going to be doing is sitting around saying poor me. I may not be able to do things the same why i used to do but i can try and adapt or do things in a different way!!
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And i would love to see the statistics of how many get taken back and how many supposedly get lost or stolen or end up on ebay or in cash converters! My sister would have liked her children to have received FREE laptops and FREE Internet Connection for her children as she is only on a low income, but she works for her low income.
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10 February 2009