DAILY FINANCIAL TIPS – DAY 32 – WHY INSURANCE IS THE FOUNDATION FOR FINANCIAL PLANS

These daily financial tips are designed to be short ideas covering different aspects of family and business finances. They are short pieces intended to provide information to enable individuals, families and businesses to make informed financial decisions. Not all tips will apply to every situation, but over the course of a year, most financial topics will be covered. Check in regularly and share with friends and associates.
When I first established my financial advisory practice I expected about 60% of my business to be insurance and 40% investments. The reality is it’s more 90% insurance and 10% investments. I realized how often and quickly peoples financial plans unravelled due to life events (often events beyond their control). And that was for people who had put a financial plan in place. Many or most Canadians don’t have a financial plan at all and many are living pay cheque to pay cheque.
We’ve seen many statistics regarding the likelihood of illness or accident. I will review some that you may be familiar with, but most often, we always think these statistics affect ‘other’ people and won’t happen to us. Unfortunately, the statistics are random, so they happen to everyone and happen more often than one would think. In my line of work, I meet these people every day, so these statistics are real people.
Stat. 1 – we all die (fact of life). Average life expectancy today is 83, however, 25% (1 in 4) Canadians won’t live long enough to see retirement, will die before age 65.
Stat 2 – 33% of Canadians will suffer a disability where they can’t work for longer than 90 days at least once in their lifetime. Most Canadians can’t survive one month without an income.
Stat 3 – 1 in 2.4 Canadians will be struck by Cancer in their lifetime (and this number is increasing).
It is recommended today that financial plans have the equivalent of 9 months of living expenses set aside as emergency funds. The primary reason it has increased from 3 months to 9 months is job searches today on average take 9 – 12 months.
When I discuss insurance options with clients, I’m often told that families can dip into retirement savings or rely on family members for support in the event of emergencies, sickness or disability. Think about that for a minute. Assuming you have retirement savings set aside, do you have enough to cover living expenses for 3 – 12 months? If you do, how long would it take you to replenish these savings (including growth)? Do you know for a fact that family members have liquid assets/savings to support you for 3 – 12 months and how would you pay it back? Have you spoken to them about it?
Insurance on the other hand is a strategy that you pay pennies on the dollar for what it will pay out. Insurance plans, should include an element of Life, Disability and Critical Illness coverage. There are many ways to structure coverages and you’ll be surprised how economical many can be.
Some true stories of clients of mine. Had a wife of a client I inherited call me. Husband was self-employed, installed garage doors in homes (not industrial). Wife was a stay at home mother who also did the company books/accounting. Called to see if they had disability coverage. Husband had fallen off a ladder and shattered his leg. He’d be off work for a year recovery.
Myself – Was helping my elderly mother with odd jobs around her home in North Carolina. I mis-stepped in the attic and fell through the ceiling. Sufferred severe compound ankle fracture. 2 ankle surgeries and a fused ankle latter, I’m still not back working after 7 months (getting close). I have disability and out of country coverage.
Young family (early 30’s), just gave birth to baby girl (first child). Wife had a difficult delivery. On further investigation after delivery, she was diagnosed with Lou Gehrig’s Disease (ALS). Just when they should be celebrating the birth of their beautiful daughter, they need to worry about the wife’s survival. Fortunately, they have Critical Illness coverage (as well as life and disability).
An associate of mine, 5 year old daughter was diagnosed with a form of brain cancer (cancer strikes all ages). They had to make gut wrenching treatment decisions. Fortunately, treatment has been successful and she’s in remission and long term prognosis is excellent. I remember him telling me, it’s not just the medical treatments, but all the other associated family costs for hospital visits, care, etc. This is one of the many reasons I’m a strong advocate of coverage for children (both Life and Critical Illness). Children plans are most often both protection and savings plans.
These are just a few of many situations. All these families were healthy with no family history. If you have insurance coverage, review it to ensure it combines life, disability and Critical Illness. If you don’t have insurance, look into some to protect your family and financial planning.
Share these ideas with friends and family and come back to check out daily financial tips and ideas. If there are subjects you wish covered or questions, please email me and I’ll include them in future posts.