Unexpected expenses are a major problem for a large proportion of the UK. The Money Advice Service (MAS) recently reported that approximately 40% of the working age population has less than £100 in savings. This means that what may look like a seemingly minor event – be it a surprise school trip, a dropped phone, or the car not starting – can have massive repercussions. If you are already living pay check to pay check and something unexpected comes up, you need to scramble quickly to fix it. But if you take a high-interest short term loan, you are 20 times more likely to end up with severe debt problems, according to StepChange.
Everyone in this position is acutely aware of how risky these events can be. This makes it very stressful even when emergencies don’t happen. Knowing you are just one unfortunate event away from potentially serious debt issues is not easy. The constant stress can make you lose sleep, underperform at work, damage your relationships with friends and family, and make you feel miserable even at times when you should be enjoying yourself. This can create a vicious cycle where financial stress impairs your performance, potentially having a negative effect on your finances. This can make you even more vulnerable, which in turn makes you feel even more stressed and helpless, further impairing your performance.
People lucky enough to have savings don’t have these problems. There may still be things that would keep them up at night, a fear of their house burning down, or car breaking down. But there is insurance cover for these kinds of events. Without savings, your fridge breaking could possibly be as financially dangerous as your house burning down. And you can’t insure against all kinds of unexpected expenses.
This doesn’t seem so fair. People with the luxury of savings are able to insure themselves against all the things that would otherwise keep them up at night. People without savings can only ‘hope and pray’ (while also putting up with all the moralizers telling them to simply ‘try harder to save’).
So why isn’t there insurance against these kinds of unexpected expenses? For one, there are about a million different things that can go wrong, so it’s not feasible to take out insurance on every event. Also, since the amounts aren’t so large, it’s not worth it for many insurance companies. A Creditspring membership is probably the nearest thing to being able to insure yourself against unexpected expenses. It's not an insurance policy but can be used in a similar way. To find out more just click here.