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Staying Financially Fit | Is Your Family Prepared for the Unexpected?

| NOV 29, 2019

It’s not a topic that most of us like to think about, but the truth is we should. That topic is an unexpected loss of income because of death or disability, and a sizable portion of us are likely to experience this unfortunate reality at some point during our working lives. Consider this:  according to the United States Census Bureau, nearly 1 in 5 people are disabled, with more than half reporting their disability as severe. 

The good news is there is much we can do to prepare. The following are three strategies that can help protect you and your family from an unexpected loss of income.

Gain peace of mind with life insurance
In the event of the unthinkable, would your family be able to live the lifestyle you want for them without your income? Depending on your age and the age of any dependents, the amount needed could be considerable. For example, someone earning $75,000 a year who has a newborn child at home would need to replace $1.35 million in income by the time that child turns 18 years of age.

Life insurance is designed to replace that loss of income over your working years. Although many employers offer life insurance equal to one year of salary, that may not be enough to meet the needs of many families. Even for people who don’t currently have children, there are typically other family members or causes they would like to support. Life insurance can make that possible.

The younger and healthier you are when buying life insurance, the more affordable it will likely be. It can be purchased as term life insurance, where you are insured for a set number of years without any premium increases, but with no cash back after the expiration of the term. Or you can purchase a whole life policy, where if you do not use your life insurance benefit, the value of your contributions (less administrative costs) can be returned to you.

Supplement your employer’s disability insurance
While many employers offer disability insurance, that benefit typically only covers 60 percent of an employee’s salary. Taking a 40 percent pay cut combined with the likelihood of significant medical expenses can hurt to say the least. Fortunately, supplemental disability insurance can be purchased to make up the difference. Often that supplemental insurance is offered through an employer at a reasonable price if you are otherwise relatively healthy.

Establish an emergency savings account
For those who have disability insurance, they typically must wait between 90 days and six months before benefits begin in the event of a disability. To replace the lost income in the interim, the general rule of thumb is to save three to six months of salary for just such an emergency. Automatically deposit a portion of every paycheck into an emergency savings account and take the worry and hassle out of funding your emergency savings.

Consider long-term care insurance
While many of us think of long-term care insurance as something that is only needed late in life, it can come into play during our working years as well. Early-onset Alzheimer’s or a traumatic brain injury are just two examples of when long-term care insurance could be needed. Beyond helping to pay for medical care, long-term care insurance can also pay for care to assist with what are known as “activities of daily living”, including help eating, bathing, getting dressed, etc. Paying for this care can take an enormous chunk out of savings, not to mention the lost income.

Similar to life insurance, it is best to purchase long-term care insurance well before you need it, particularly if you are in good health. For most people, that is when they are in their 40s or 50s. 

Life can take a turn at any moment. Take steps today to prepare for the unexpected.

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