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Protect your lifestyle and your income amid fears of a 'double dip' recession

Jeremy Gates rounds up the nation's money issues and reports on how one of Britain's biggest building societies is looking to protect your income
IF BRITAIN'S economy hits the feared 'double dip', either because of the sinking eurozone or for reasons closer to home, millions of households have minimal savings as a cushion if their main income is lost.
New research from personal finance website unbiased.co.uk claims more than 15 million adults in Britain could face severe financial problems; it says 39% of 35-54-year-olds admit they would struggle if they lost their job, sharply up on the 28% response recorded a year ago.
Younger people (18-34) are less worried - at 34% and 30% respectively, possibly because they have fewer commitments, such as mortgages and rents, to meet.
Karen Barrett, chief executive of unbiased.co.uk, says: "The state of our financial climate is beginning to hit home and our research shows many people would struggle if they lost their jobs.
"The continued low interest rate and increasing inflation are having a severe impact on returns on savings while the housing market remains volatile.
"In a critical and unpredictable time, consumers do not know which way to turn for the best and it is vital they seek professional financial advice for their situation, for now and the long term."
Unbiased.co.uk represents financial advisers, and many consumers hesitate to pay the £100 per hour which advisers charge. But many are comforted by the thought of insurance cover which delivers a regular income if they lose their regular employment.
However, even the most prudent consumers have had their confidence in financial services severely dented by the payment protection insurance (PPI) fiasco unfolding before our eyes.
The Competition Commission says consumers were overcharged by £1.4bn on PPI policies, while the financial services industry - banks, building societies and card companies - raked in annual profits of £5bn.
The Office of Fair Trading found only 20% of the money paid in PPI premiums is ever paid out. Money was often taken from consumers with minimal hope of making a successful claim.
Against this troubled background, Nationwide Building Society has launched Lifestyle Protector - an innovative and flexible short-term income protection policy to protect households through the worst.
It gives consumers the choice of protecting their income against unemployment, accident and sickness, or all three at once, for up to 12 months.
It is designed to provide a monthly income benefit which can be used to cover any monthly outgoings, from mortgage and rent to utility bills, gym and mobile phone bills, all under one standalone policy.
Nationwide head of general insurance John Baker says: “In uncertain times, it makes sense to protect against loss of income, but few employers provide anything like an employee’s usual level of income during a period of prolonged sickness.
"Even if customers have no significant debts, they will still have to meet everyday expenses to maintain their usual standard of living.
"We think Lifestyle Protector offers one of the most flexible solutions available, providing a degree of cover against the worst which each consumer thinks they might need.
"Unemployment is a big fear, so if you are cost-conscious, you can decide what you need to guard against and what level of monthly income you require, even down to a gym membership, if necessary.
"When the policy pays out, money goes direct to the consumer, so it is up to them what they do with it.
"The other key thing is that if your situation changes, and you don’t need this cover any more, you can cancel free of charge. Or if you decide the risks have changed, you can adjust the benefit amount which the policy will pay out."
For a 30-year-old, an indicative premium of £17.65 per month to Lifestyle Protector pays a monthly benefit of £500 for accident, sickness and unemployment cover, with a standard wait period of 30 days and maximum benefit period of 12 months.
To ensure a £1,000 monthly income, monthly cover would cost £39.85.
For a 40-year-old, similar cover costs £21.38 per month for a £500 monthly income. To secure a £1,000 per month income, the premium is £47.90.
The product is available to any consumer, regardless of whether they have a Nationwide savings account or a mortgage.
Lifestyle Protector also accepts applications from people with pre-existing conditions, and it also includes an element of life insurance, paying up to £30,000 on death of a policy holder.
Nationwide believes its new product avoids the abuses of the PPI scandal, and puts consumers in greater control of their own position.
Shane Craig, at specialist broker Paymentcare, agrees that prudent consumers still need PPI despite the current scandals.
"While there have clearly been some rotten apples in the barrel, PPI still provides a vital function for those with mortgages and other debts to service," he says.
He says he has offered something similar to Nationwide's product since 2005, albeit with a maximum monthly benefit of £1,000, against a maximum £2,500 at Lifestyle Protector.
Through his website - www.justclick4cover.com - Craig thinks consumers could buy a similar level of care for a lower monthly premium: £14 at age 20, £15 at 30, £18.50 at 40.
However, Matt Morris, at the broker Lifesearch, thinks income protection is only really worth having if it is prepared to pay out for a long period - if necessary until a claimant reaches retirement age.
"While Nationwide’s new cover is better than standard PPI," he says, "it is not as good as long-term income protection.
"It should only be considered if full income protection is not available: the latter pays out much longer and cannot be cancelled by the insurer."
Morris recently fixed cover for a 30-year-old employee to pay £1,000 per month for 35 years in the event of a claim - for a £25 monthly premium.
"If you are young and healthy, income protection doesn't really cost much," he says.
"Premiums rise for older people as insurers ask more questions.
"For the average person with no dramatically terrible illness, full income protection need not cost very much."
Nobody yet knows how deep this recession might become, so any families who could face a drop of income should consider now what defences to put into place.
Nationwide Lifestyle Protector (08457 302 010 and www.nationwide.co.uk); www.justclick4cover.com (0344 406 4087); Lifesearch (020 7786 2000 and www.lifesearch.co.uk); Paymentcare.co.uk (0344 406 4088).