What the coronavirus means for your finances

With the outbreak reaching more than 180 countries and affecting more than 190,000 people, the coronavirus has not been far from the headlines in recent weeks.

The extent of the spread of the virus has affected life around the world in many ways. From countries on lockdown to the cancellation of major events, disruption caused by Covid-19 is having a significant impact on global stock markets.

So, how is the coronavirus affecting your finances?

Pensions and investments

In the month fo March 19th, the FTSE 100 index fell by around 31%. Other markets around the world have seen similar falls.

According to The Guardian, British pension funds lost 5% – 6% of their value in the last five days of February alone, as fears over the impact of coronavirus sent stock markets tumbling around the world.

  • Travel companies have reported significant drops in demand and have announced emergency measures, including grounding flights and freezing pay. Shares in firms such as TUI, easyJet and IAG, the owner of British Airways, all saw their share price plummet while British regional airline Flybe fell into administration
  • The cancellation of events including Eurovision and the Euro 2020 football tournament has had a knock-on effect on both travel and hospitality. Drinks giant Diageo has already reported that it expects its profits to be down by around £150 million because of falling sales due to the coronavirus
  • Factories around the world that rely on parts from affected areas are also suffering. Jaguar Land Rover has already warned that it could run out of car parts at its British factories as the coronavirus halts supplies from China.

A downturn in global stock markets will affect anyone who has equity-based pensions or investments. The Guardian reported that someone in their early 60s with a typical pension pot of around £250,000 saw its value fall by around £13,000 in the last week of February.

It is important to remember that:

  • A fall in the value of stock markets does not mean your investments fall by the same amount. For example, pension funds typically hold 60% to 70% of their investments in stock markets, with the rest in cash, bonds and similar types of asset
  • Investing is for the long term. There is always the potential for short-term volatility in stock markets, caused by everything from the EU referendum to the coronavirus. In the long term, stock markets have generated returns, with IG reporting that the average FTSE 100 return over the last ten years is 8.3%
  • Withdrawing from stock markets after a fall turns a paper loss into an actual loss. It’s important to be patient and to remain calm.

Travel insurance

If you are planning to travel to a destination where the government has advised against all but essential travel, your travel insurance is likely to cover you.

If you travel despite a government warning, you may invalidate your cover.

Note that travel insurance does not cover ‘disinclination to travel’. So, if there is no official guidance and you simply decide you do not want to take the risk of travelling, it’s unlikely your travel insurance will cover you.

If you are concerned about a trip you have booked through a tour operator or travel agent, or using a credit card, you may want to contact them to see if you are able to get a refund or have your trip rearranged.

Life insurance

In most cases, if you have a life insurance policy in force that you took out before contracting the virus, and you later pass away, your life insurance would pay out.

Critical illness cover

Critical illness policies typically cover a list of specified medical conditions, including heart attack, stroke or cancer.

As coronavirus is unlikely to be a specified condition on an existing critical illness policy, it is unlikely that your cover would pay out if you contracted the virus.

Income protection

If you do contract the coronavirus and you’re not able to work as a result, any income protection you have in place should protect you.

Remember that your policy may have an excess period (typically 4, 8 or 12 weeks) and so any payments would only begin once you had been unable to work for longer than this excess period.

Get in touch

If you need advice on how the coronavirus could affect your finances, please get in touch. Email enquire@london-money.co.uk or call us on (0207) 808 4120.

Please note:

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Your pension income could also be affected by the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.