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Cancer, depression and broken bones can stop you from doing your job. And I’m stating the obvious, but if you can’t work, you’ve got no money coming in. And when you have no money coming in, you can’t pay the bills, which can lead to debt — and further problems down the line.
That’s precisely what happened to one of my patients, and why I want to discuss how it’s so important to put insurance in place. With the right insurances in place, you can ‘rent’ wealth, before you have wealth. And in today’s post, I’m going to tell you exactly how you can prevent leaving yourself vulnerable to potential financial hardship.
Vulnerability is Scary
While it might sound dry and boring, insurance is something we should all have while building our wealth. Unless you come from a wealthy family, living without insurance means you’re leaving yourself vulnerable. You work hard every day, paying off debt, growing your savings, and building your investment portfolio.
But until you have built enough wealth to support yourself, you can’t afford to stop work. You’d have no income to pay the mortgage or put food on the table. Of course, you might get to a point where you’re free of financial stress because you understand how to manage your money. It’s a great feeling, but that’s not financial independence.
“Financial independence is the point where you can stop working, when your money covers you.”
When you’re in that vulnerable period between now and reaching true financial independence, you need insurance. If you face a situation where you can’t physically work and earn an income, it’s a scary time.
Let me tell you a story
In my position as a GP, I was looking after a 50-year-old man who had broken his ankle, and had to wear a boot while it healed. He had to wear it for a while, and as a self-employed mechanic, wearing this boot meant he couldn’t work. He’d worked so, so hard for years, but had nothing to fall back on. No money put aside as insurance; no money in savings.
He’d been living paycheck to paycheck, and now couldn’t earn anything.
He couldn’t pay his bills because there was no money coming in, which meant he fell into debt.
He could just about make sure the mortgage was being paid, but his wife had to take on extra work in order to make ends meet.
Then he became depressed.
It was a really difficult time for him, and one that happens so often.
Eventually, the injury healed, the boot was removed, and he was able to return to work. But he would’ve spent the next few months having to pay back the debt he’d accumulated during that time. This story highlights a real vulnerability in a person’s finances if they’re unable to cover themselves during a period of sickness.
Now, he’s not to blame. It’s a lack of education that’s the problem; we’re not taught any of this stuff. It’s not the kind of thing you come out of school knowing. Thankfully, things are changing for the better as people become more financially aware. But it’s certainly not something that was talked about when he or I were at school.
It could happen to you
There’s a common perception that insurance is expensive. Also, do we really need to cover ourselves? You probably think it’s not going to happen to you, right? This kind of mentality means people go on holiday without insurance, or take a risk on not taking out cover elsewhere.
We think it’s not going to happen to us.
Unfortunately, it does. No one is exempt from a situation like this.
Get Insurance Protection
So, what can you do? There are lots of different insurance products out there, but I’m going to break it down into three possible areas that you can look into and arrange some protection. Then, while you’re focused on getting out of debt and building your assets, you are covered until you reach that level of complete financial independence.
While this isn’t something that will directly benefit you, life insurance will help your family in the event of your death by paying out a lump sum. One example of this is Term Cover, which can be fixed for a period of time; say 30 years. This could be useful if you wanted to cover your mortgage, for example. With ‘decreasing term insurance’, the pay-out sum would decrease over time, as the balance of the mortgage reduces.
You could also potentially cover any outstanding debts, or the payment of your funeral. An independent financial planner could arrange to have this money protected in a trust, so that the money is not used in your estate planning when you die. It would then go to your partner and children to do what they need with it, such as pay off the mortgage.
If you and your partner are both contributing to the bills, what would happen if one of you died? Are you going to be able to cover the bills yourself? You might have to take time off to look after young children, or reduce your hours, which will make life so much harder. Another type of term cover that could help here is family income benefit, which means your family will receive regular payments in the event of your death.
If you don’t have any dependents, perhaps you might not need life insurance cover. So, before you jump in, do some reading and decide whether it’s right for you.
Income Protection Insurance
Income protection insurance is probably what the man in the above story should have had. It covers you if you have to take any length of time off sick. It can include incidents such as broken ankles, other muscle and skeletal-type disorders, depression, stress, and cancer. You will need to check with the insurance company what exactly is covered as you won’t want to be caught out.
In the past, there have been situations where the illness may not have been considered serious enough. Or incidents where the insurers wouldn’t cover you because of your line of work. So be sure to check the small print and ensure that regardless of your circumstances, you’re covered. That way, your income will be protected, and you can keep paying the bills.
Employed vs. self-employed
If you’re self-employed, your income protection insurance should be set up to start as soon as your illness prevents you from working, unless you have a savings buffer in place.
If you’re employed, on the other hand, you likely have some form of sickness benefit through your employer. In which case, you can arrange for your insurance payments to start when that runs out. This also has the added benefit of making your premium cheaper.
Critical Illness Cover
If you become sick from a critical illness such as cancer, you can get cover which will pay out a lump sum of money. This might be useful for something like paying off a mortgage but isn’t necessarily helpful with covering ongoing costs.
If you’ve paid off your mortgage, great. But you can’t work, and you still have bills to pay. You need to eat, put fuel in your car, and clothe yourself and your family. So, what can you do? You might decide it’s safer to have a combination of critical illness cover, income protection insurance and life cover.
As long as you’ve got the right type of cover in place for your circumstances, you’ve got peace of mind. You can continue building your wealth, knowing you have that safety net there to fall back on should you need it.
If you want to find out more about different types of personal insurance cover, there is a really great video in my membership by Samantha Bradford from a group session she did with us. When you sign up, you’ll be able access the video and lots of other goodies in there, too!
If you’re not sure what to do next, have some questions or want some extra support, come and have a 15-minute strategy session with me. (It’s completely free). Let’s have a cuppa and chat about your money and make a plan for your next steps. Other women have got some fantastic results from that alone, so don’t miss out! I look forward to chatting with you.
Catch you again soon, and take care!
Bye for now,