While no one knows what's around the corner, if you're worried about job security you might want to consider insuring your income so you have a back up in case you face redundancy in the near future.
Here's how to insure your income against unemployment so your finances aren't hit too hard if you lose your job.
1. Income Protection
If you want to ensure you remain financially secure and able to meet your existing financial commitments should you lose your job, then taking out an Income Protection policy could be a wise move.
Here's what you need to know about Income Protection insurance and what you should consider before taking out a policy.
What exactly is Income Protection Cover?
Income Protection insurance is designed to provide you with a replacement wage or salary should you be made redundant or are unable to work for reasons beyond your control.
These reasons typically include injury, illness and compulsory redundancy although you can usually tailor you policy to cover the reasons you are most concerned about.
How much cover do you need?
You need to decide exactly how much cover you need before you start getting quotes.
You may decide that you just want enough cover to pay for essential bills including your rent or mortgage, home insurance and council tax.
Equally you may decide that you would like the cover to be sufficient to pay for other bills including your food, other insurance and phones etc.
However, most insurers won't cover your whole salary, instead they'll cover a percentage of your current income and set a maximum amount.
For example an insurer may offer to cover up to 60% of your monthly income but limit total payments to £2,000 a month.
Cover limits differ between providers and normally these range from 50% up to 70%.
The higher the income you choose to cover the more you will be asked to pay in monthly premiums.
So make sure you think about this realistically before your take out a policy.
Will you be covered?
Before you take out Income Protection cover you will need to check that you are eligible. Workers in certain jobs or with certain pre-existing medical conditions may find it difficult to get protection.
Your age may also be a factor, most Income Protection providers will not cover under 18s, and many place an upper age limit on applicants as well.
There are usually also restrictions placed on when an Income Protection policy will pay out, with many only allowing you to claim if you lose your job or cannot work for certain reasons.
If you take voluntary redundancy for example then chances are that you won't be able to claim as the insurer will take the view that it was your decision to leave the company.
When will your policy pay out?
When comparing Income Protection policies you need to check how long you'll need to wait before the policy will pay out for a claim.
Most policies will start to pay out between 30 and 90 days after you are officially made unemployed, or in the case of illness or injury, the first day you are signed off work by your doctor.
If you don't feel that you have enough savings to support you in the short term, you should consider choosing a policy with a shorter wait period.
Is income protection insurance worth the cost?
It can be difficult to judge whether taking out Income Protection is worth the cost, as you may never need to make a claim.
However, should you lose your job or fall ill having an alternative source of income to fall back on could make a big difference to your lifestyle.
If you are only out of work for a few weeks then an income protection policy may not prove worthwhile. However, if you do find yourself without work for several months these policies can offer vital protection.
If you decide that you want an Income Protection policy take the time to compare several quotes and choose the policy that gives you the benefits you want for the lowest cost.
Getting the best Income Protection policy for your individual circumstances is essential.
As you may value certain features over others depending on your financial situation, it's not possible to take a 'one policy fits all' approach.
Read our guide: Income Protection Insurance: How to Pay Less for Your Policy for guidance in finding a policy that's right for your income, or compare the different policies available, their features and costs using our Income Protection comparison table.
2. Mortgage protection insurance
Your mortgage is likely to be your greatest monthly expense. While you may have no problem meeting your monthly payments at present you need to consider whether you could still afford to pay your mortgage as well as all your other bills if you lost your job.
One solution is to take out a Mortgage Protection insurance designed to pay your mortgage for a set period should you lose your job or be unable to work.
As with Income Protection, most Mortgage Protection insurance policies typically cover loss of income through unemployment, illness and injury.
However some cheaper policies only cover redundancy, so make sure you know exactly what is included before signing on the dotted line.
Avoid taking a policy with your mortgage provider
When you get a mortgage it's likely that you'll be asked whether you'd like to take out a Mortgage Protection insurance policy to run alongside.
However, you don't have to take out the cover you're offered.
The mortgage protection sold in conjunction with mortgages tends to be quite be expensive and may not be right for your circumstances so it's always better to shop around.
If you do have a protection policy with your mortgage provider, check exactly how much it is costing you and what protection it offers. You may be able to cancel your cover and choose a policy that offers better value for money.
Compare the different insurance policies currently available using our mortgage protection comparison table.
3. Payment Protection
If you have other large debts, such as personal loans or credit cards, then you may want to consider taking out separate Payment Protection cover.
You need to ask yourself whether you would be able to keep up with your repayments should you lose your income. If you would struggle and are worried about your job security, a Payment Protection policy that would cover your repayments on your behalf while you were out of work may be worth considering.
However, this type of cover would only be linked to one financial product, such as a loan or credit card, and is rarely sold now
An Income Protection policy on the other hand would be designed to replace a proportion of your total income for you to spend as you see fit so you need to think about which is going to best suit your needs.
Don't double cover
If you already hold an Income Protection policy then you may find that you don't need another form of payment protection insurance.
Carefully check your policy terms and conditions before you double cover yourself as some Income, Mortgage or Payment Protection policies will not pay out if you are able to claim an income from another policy.
This would essentially mean that the extra cover you were paying for would be useless - so think carefully about what type of cover best suits your circumstances and choose the one that gives you what you need at the lowest cost.
4. Draw up a budget
Drawing up a budget is a good way to ensure that you are living well with your means and could help you identify the areas you could cut back should you ever lose your job.
Work through you outgoings each month and draw up a list of essential costs and the other areas where you could cut if you need to.
If you want to start saving each month having a budget in place may help you to cut back and increase the amount you can save.
5. Reduce your debts
Having outstanding debts when you are in work can be manageable, but if you fear that your job might be on the line paying them off as quikly as possible will ensure you have greater financial freedom if finances get tight.
Make your debts cheaper
Before you start looking at repaying your debts it's worth taking the time to check if you can make your outstanding debts any cheaper, especially if you have outstanding credit card balances or loans.
Shifting expensive credit card balances onto 0% balance transfer credit cards could save you a substantial sum in interest and allow you to pay off what you owe quicker.
Prioritise expensive debts
While paying your rent & mortgage should always remain your top priority, if you have several different unsecured debts outstanding then it makes sense to prioritise your payments so you clear the most expensive first - although you should ensure you keep up minimum repayments across the board.
Check the interest rates you are being charged on each of your debts, including all your credit cards and loans, so you know which is costing you the most each month.
Then prioritise your repayments so you clear these as quickly as possible so they are not a burden should you lose your job - you will need to keep up at least the minimum repayments on all the others too.
Check if you can overpay
Although reducing your debt as quickly as possible can be a great way to cut your interest charges, some debts will limit the amount you can overpay, or charge you for the privilege, making paying extra less worthwhile.
Overpaying your mortgage can seem like a smart thing to do but it may not necessarily be the best choice if you are worried about your job.
This is because overpaying may only reduce your mortgage term and the amount you repay overall rather than your payments each month, meaning you wouldn't actually free up any income.
That said, depending on your mortgage terms and conditions, overpaying your mortgage may also give you some leeway to take a payment holiday should you lose your job.
Read our guide: Should I Overpay My Mortgage for more information.
Building your savings so that you have some money to spare should you find yourself out of a job is a great way to ease your money worries.
However, squirreling away your cash into a savings account while you have expensive debts outstanding is likely to be counterproductive in the long run. Read our guide: Should I Use My Savings To Pay Off My Debts? for more information.
Choose a suitable savings account
If you're not sure when you might need to draw on your savings then you need to look for the best instant access savings account possible.
This way you can get to your money should you need to but still earn a good interest rate while you're saving.
Look for an account that offers the best interest rate, without imposing any penalties should you need to withdraw your money at short notice. You can compare the best instant access account using our instant access savings comparison table .
7. Get access to cheap credit
If you think that your job could be at risk then you might want to consider applying for cheap credit while you still have a regular income.
While it is never a good idea to rack up debt while unemployed, if you are going to have to borrow money until you can get a new job then you might want to consider applying while still in work as you may not qualify for 'cheap' credit if you become unemployed.
A 0% credit card could be useful should you need to spread payments while you're out of work.
You can compare 0% purchase credit cards using our credit card tables.