Financial high earners face four critical areas of financial strain – outlined below is a straightforward solution to alleviate these issues.
Higher Earners Face Significant Financial Risks due to Debt and Lack of Insurance
Higher earning families are at a greater financial risk due to their reliance on a single breadwinner, high debt levels, and insufficient insurance coverage, according to financial experts.
These families often have higher debt levels than other income groups, with a larger share on expensive variable interest rates, increasing repayment costs. Elevated spending, especially on essential housing costs, adds further financial pressure. The over-reliance on a single breadwinner makes them less resilient to income shocks, as losing that income source dramatically reduces financial stability.
If the breadwinner suffers job loss, serious illness, or death, the family may struggle to meet debt repayments and maintain their lifestyle due to insufficient insurance protection to cover those risks. The risks include increased stress, potential inability to service debts, and a rapid erosion of financial security and lifestyle.
A lump sum payout from critical illness insurance can help cover ongoing bills, make lifestyle adjustments, or take time to recover without financial panic, especially if you're the main breadwinner. However, only around one in 10 higher earners have an affordable level of debt, given their debt repayment obligations.
The average cost of closing the life insurance gap is £134 a year and for homeowners with at least one child it costs an average of £321. Despite this, only 53% of high earners have enough life insurance to be resilient, according to Hargreaves' research.
The top 10% of earners are a significant target for tax rises in the upcoming Autumn Budget. The average annual spending for high earning households is £71,947. Essential housing costs for higher earners are 55% higher than the national average, at an average of £1,439 per month per household.
Protecting your income with insurance is essential for protecting your entire household, according to financial advisor Jude Dawute. Long-term financial planning and insurance need reassessment are crucial for such families to avoid these financial pitfalls. Critical illness cover is arguably even more important than life insurance, as you're more than four times more likely to suffer a serious illness than to die before retirement.
[1] Hargreaves Lansdown research [3] Sarah Coles, head of personal finance at Hargreaves Lansdown [4] Jude Dawute, financial advisor [5] Financial Conduct Authority (FCA) research
- To better manage their financial risks and secure their wealth, higher earning families should consider reevaluating their long-term financial planning and insurance, focusing on the significance of insurance protection, particularly critical illness cover.
- Reports indicate that while essential housing costs for higher earners are 55% higher than the national average, only 53% of high earners have enough life insurance to maintain financial stability in the event of an income shock.
- Higher interest rates on debt consolidated with variable rates add to the financial burden of high-earning families, compounding their debt repayment costs and impacting their savings for personal finance and investing.
- Acknowledging the importance of personal finance management, critical illness insurance should not be overlooked as it offers protection during crucial times, making it essential for maintaining financial security and lifestyle, especially for the main breadwinner in higher earning households.
