The coronavirus and your finances – what you need to know

In recent
weeks, the outbreak of Covid-19 (previously known as ‘coronavirus’) has made
headlines around the world.

By mid March, the World Health Organisation reported that there had been more than 110,000 reported cases globally, with more than 4,000 deaths. With outbreaks recorded in locations as diverse as Austria, Iran and Singapore it’s clear that the virus is continuing to spread, with the World Health Organisation declaring the outbreak a pandemic.

With
quarantine procedures, travel bans and other measures already in place, here’s
how Covid-19 is having an impact on financial services and products.

Global stock markets fall on virus fears

Fears for
a slowdown in the global economy because of the coronavirus has seen the FTSE
100 index fall. In the last week of February, the index fell by 11%, wiping
around £200 billion off the value of the UK’s top companies.

Michael Hewson, chief market analyst at CMC Markets UK, says: “What we appear to be seeing is the realisation that global economic growth could well come to a halt as the combined effects of a flu virus and belated attempts to stem the spread of it across the globe raise the prospect of an economic sneeze, as consumers stop spending and supply chains seize up due to workers and consumers staying at home.”

It’s not just the FTSE that has fallen. On 25 Fe b ruary the US S&P 500 fell 3%, the Dow Jones dropped 3.2%, the Nasdaq was down 2.8% and Japan’s Nikkei 225 fell 0.8%.

In the
short term, this could mean a fall in global markets as businesses cut sales
and profit expectations.

The International Air Transport Authority has warned that the hit to demand could cost airlines more than $29 billion this year, while companies as diverse as Virgin, Danone and Diageo have already stated that they expect sales to fall significantly. The drinks giant has predicted that earnings could be dented by as much as £200 million.

While
there may be a short-term impact, it’s important to remember that investing is
generally for the long term. As a recent briefing from Tatton says:

“This bout
of volatility will take some time to pass, and further stock market falls are
certainly possible, even likely given the nature of the newsflow.

“However,
there is good medium-to-long-term potential for stocks. Developments may well
be positive rather than negative (perhaps the arrival of an effective drug) and
trying to time any risk reduction (and increase) threatens to destroy value for
investors rather than protect them.”

You should
remember that:

Your goals
are likely to be the same as they were a week or a month ago. Our investment strategies
are designed with the long term in mind, and this naturally considers periods
of both positive and negative returns.
You have a
diversified portfolio. The fall in the value of the FTSE 100 is not the same as
the fall in the value of your portfolio. Our clients have diverse portfolios
that include exposure to other asset classes, for precisely this type of
situation.
Selling
after a downturn means you turn a paper loss into a real loss. According to JP
Morgan, an investor with $10,000 in the S&P 500 index who stayed fully
invested between January 4, 1999, and December 31, 2018, would have about
$30,000. An investor who missed 10 of the best days in the market each year
would have under $15,000.

Travel insurance may only cover you in certain circumstances

As of late
February, the Foreign and Commonwealth Office has only issued travel advice for
China. This means that only Brits travelling there or through there will be
eligible for refunds from a travel operator.

Indeed, if
you travel to a country or region against government advice, your travel
insurance may be invalidated.

‘Not
wishing to travel’ is not covered by most travel insurance companies. Consumer
group Which? say that, as there has been no official advice not to
travel to areas such as Italy, you will not automatically be eligible for a
refund of your trip if you decide not to visit because of the outbreak.

Your
travel insurance policy may cover some out-of-pocket expenses, and also help
you to leave the area and return back to the UK if you are advised to do so,
and if you can’t get help from other sources. It may also cover non-refundable
cancellation costs, in specific circumstances, such as medical advice against
you or a member of your party from travelling or government advice against travelling.

What coronavirus means for life, critical illness and income protection

In the
unlikely event that you were to die from the coronavirus, your life insurance
policy would be expected to pay out.

Similarly,
if you contracted the virus and you were not able to work as a result, you
could expect your income protection to cover you. Bear in mind that there may
be an excess period (typically 4, 8 or 12 weeks) on income protection, so any
payments would only begin once you had been unable to work for longer than the
excess period.

When you
protect yourself using a Critical Illness policy, your specific policy details
will outline exactly which conditions are covered.

This means
that it is unlikely that you could make a successful Critical Illness claim if
you contracted coronavirus, as it won’t meet the illness definitions under your
policy.

If your
Critical Illness policy includes death benefit, then it would pay out in the
unlikely event that you were to die from the coronavirus.

What to
consider if you’re currently taking out new protection insurance

If you are
currently applying for life or health insurance, and you are planning to travel
to an area that has been affected by the coronavirus, your application could be
postponed.

Protection expert Emma Walker told Cover magazine: “When applying for protection insurance it is common to be asked about travel abroad and if someone is being investigated for coronavirus or has travelled to Wuhan recently, the application is likely to be postponed.

“While no
UK life office has confirmed it is planning to change its application questions
or underwriting as a result of the virus, recent travel to certain countries
will continue to trigger a referral for an underwriter to review the
application.”