In light of the coronavirus pandemic, we know that many companies in the UK are struggling and redundancies are unfortunately inevitable. In hindsight, it can be very easy to spot a company in trouble but not so easy to spot the signs when you are living the situation.
We will now take a look at common signs that companies are struggling and how you can protect your income.
If overtime has been cut, wages are being paid late and the business is slowing down, it may be about to go bust. Make sure you have income protection insurance to cover up to 70% of your wages if it does.
There are many ways in which you can protect your income, the most popular being income protection insurance. This type of policy is extremely flexible, covers different budgets and different levels of subsidy.
So, if you are concerned about the short to medium-term outlook for your employer, then it may be time to look at income protection.
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We update all our guides regularly. If you are researching the Income Protection and we haven’t got an exact guide that helps you, keep coming back as we update daily.
Is Your Employer Late Paying Invoices?
Cash flow is one of the first victims when a company is struggling and potentially on the verge of going under. As a consequence, you may notice patterns of late payment of invoices with irate suppliers often on the telephone. It is surprising how quickly rumours and counter rumours can spread across a small, medium or large size business!
A recent survey confirmed that while 41% of the general public have life insurance and 16% have private health insurance, only 9% have income protection insurance.
Has Overtime Been Reduced?
In years gone by, overtime was not exactly a regular occurrence, but it can be in the modern-day business arena. Rather than taking on additional long-term staff, very often employers will offer regular overtime to existing staff.
If you see a sudden reduction in overtime available, this may be a sign that business is cooling and your employer could be in trouble.
Late Payment of Wages Is Another Sign
We often see a late payment of wages mentioned in the news when companies are struggling, and this can be the last act of a dying company. Directors and owners are well aware that mistrust among staff, late payments and keeping them in the dark is not good for business and any potential recovery.
So, if your employer is paying your wages later and later, even if they have plausible excuses, be very cautious.
Is Your Employer Uncompetitive in the Marketplace?
Even a quick flick through the Internet will show product/service prices for your employer compared to those offered by the competition. In a perfect world, a healthy company would look to challenge promotional offer/prices by their competitors.
Those who are struggling may be under pressure from their bank and unable to compete on price alone. This may be a sign that your employer is becoming less and less competitive.
Is Your Employer Cutting Back on Marketing Expenditure?
When a company is in trouble, they will cut back on expenditure to try and maintain cash flow. One of the first budgets to be cut tends to be marketing although unfortunately, it is marketing which can dictate future business, future turnover and future profitability.
While a company in a strong position is unlikely to cut back on marketing, for one in a weak position, cutting marketing spend may be one of their first considerations.
How Can I Protect My Income if My Employer Is Struggling?
If looking at unemployment protection, you may need to specifically request this type of cover as normal income protection policies only cover sickness and injury. Traditional policies will cover between 50% and 70% of your monthly income.
You will need to wait from 4 weeks upwards after you are made redundant to make a claim. However, after a successful claim, you would receive a tax-free monthly income.
Is Your Employer Pushing Unachievable Targets?
While not necessarily always a sign of panic, if your employer is struggling, then they may attempt to squeeze their employees with high, often unachievable targets. Sometimes this can be seen as a sign of desperation, and if employees are pushed too hard, then they may need to take time off sick.
It is worth remembering that all employers are responsible for the health and well-being of their employees. So pushing them too hard to the point of illness could lead to legal action and personal injury compensation claims.
For How Long Will Unemployment Protection Payout?
It will depend upon the type of policy, level of premium and specific cover, but you would normally expect to receive unemployment income protection for 12 months (maybe even 24 months). It is unlikely that you would be able to add unemployment protection to a long-term income protection policy.
This would place insurance companies at risk of significant liabilities for many years to come.
How Likely Is My Insurance Company to Payout?
Many people are often sceptical about income protection and in particular unemployment protection. In general, UK insurers paid out on 97.2% of income protection policy claims during 2015.
So, unless there is a specific problem with your policy, perhaps some information was omitted from the application form, or it is a fraudulent claim, you are likely to receive payments. If you are unclear about the details of your income protection policy, it is very important that you request an explanation before signing up.
Is It Cheaper to Approach an Insurance Company Direct for Income/Unemployment Protection?
While many people use insurance brokers for advice, guidance and often more competitive packages, some people prefer to deal directly with insurance companies. Often under the assumption that they will be able to negotiate reduced premiums, this tends not to be the case.
It is only really those brokers who are able to funnel significant business volumes to individual insurers who will be able to negotiate improved terms.
Do I Pay Commission Through a Broker?
Whether an independent broker or a tied broker, you tend to find there are three different types of commission arrangement. The broker might receive a commission from the insurance company, from the client or a mixture of the two.
As a consequence of regulatory changes, brokers need to be extremely transparent with regards their commission rates and income from third parties.
Should I Consider Voluntary Redundancy if This Is an Option?
You tend to find that companies expecting financial turbulence will look to cut their wage bill and running costs before the end. One of the quickest ways to do this is to undertake a period during which employees can apply for voluntary redundancy.
There are very tight regulations regarding consultation periods and the offering of voluntary redundancy, but it may be an option. However, how might this impact issues such as income protection insurance?
What Is the Difference Between Voluntary and Compulsory Redundancy?
As we touched on above, many companies will look at a voluntary redundancy package to cut their wage bill and running costs. This may include offering a number of employees an enhanced package to leave the company. If this process does not attract enough applicants, then compulsory redundancy may be an option. There are some very different issues to consider with regards to voluntary and compulsory redundancy.
It is highly unlikely that your income protection insurance provider would payout if you took voluntary redundancy. The situation is different with compulsory redundancy, which is exactly what this type of policy was created for. The chances are that you also received a larger package if you took voluntary redundancy, which may impact your eligibility for various benefits. There is a lot to consider!
Should I Hold On Until the Bitter End?
There is a temptation to hold on until the “bitter end” in the hope that your employer can turn the corner and return to a more stable financial footing. If your employer fails to recover and becomes insolvent, then they will basically cease trading.
If you are owed redundancy payments, unpaid wages, accrued holiday and notice pay you can claim this from the National Insurance fund. All claims must be channelled through the Insolvency Service, but it is useful to know that you will receive some financial assistance in this scenario.
It is also worth noting that you would only receive the statutory redundancy pay in the event that you were forced to claim through the National Insurance fund. This is obviously something to bear in mind if voluntary/compulsory redundancies were an option.
What Happens to My Pension Fund if My Employer Goes Under?
Thankfully, a company pension fund is independent of the employer and therefore, unaffected from a financial standpoint if your employer goes out of business. As a consequence, your pension entitlement will also be protected. If your employer was behind on your pension fund contributions, it is unlikely these would be reclaimable in the event of financial collapse. In recent years we have seen a significant increase in the regulatory protection afforded to pension funds.
There have been numerous scandals in the past which have cost individuals thousands of pounds. Indeed, only recently, we have seen instances where company pension funds have been underfunded sometimes to the tune of hundreds of millions of pounds. There is a regulatory process by which the authorities can attempt to reclaim underfunding, but this is not as straightforward as you might expect.
Should I Take Advice if My Employer Goes Under?
There are many parties out there who will assist you in the event that your employer goes under and you are concerned about funds owed. The process of claiming funds owed is relatively straightforward, but many people choose to go through specialist financial advisers.
This also allows the review of your wider finances. This should identify where you stand and whether you have sufficient income, savings and investments to fulfil your short to medium-term financial obligations.
In many cases, looking back in hindsight, there will have been numerous signs that your employer was struggling and on the verge of going under. When you are living in the situation, it is much more difficult to see the wood for the trees.
In many ways, this perfectly illustrates the importance of unemployment/income protection as a means of maintaining a degree of regular income in troubled times. While traditional income protection policies will cover those unable to work as a consequence of sickness/injury, it is possible to add other elements such as unemployment cover.
Quick Income Protection FAQs
The cost of income protection insurance will depend upon your individual scenario and your requirements. The long-term income protection cover is more expensive as it could payout for a number of years in various scenarios.
Short-term income protection is limited to between 12 months and 24 months per claim per condition and is, therefore, less of a liability for the insurance company.
While in exceptional circumstances, you may see unemployment protection extended to 24 months, the normal duration is 12 months. All policies include an initial period when no payments are made, which can be anything between 4 weeks and two years.
The deferral period would depend on your redundancy package, level of savings and financial liabilities.
When taking out an income protection policy, which includes redundancy insurance, you need to specify your salary at the time. There is some variation in the level of funds made available under this type of policy, but it tends to vary between 50% and 70% of your regular monthly income.
So for example, if prior to being made redundant you earned £2000 a month before tax, you would receive between £1000 and £1400 a month if made redundant.
How Can Money Savings Advice Help You With an Income Protection Insurance?
Here at Money Savings Advice, we have partnered with some of the UK’s leading Income Protection Insurance brokers. They have already helped thousands of people get the best Income Protection Insurance cover and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.