Income Protection: an unsung hero
Updated: Apr 24, 2020
As a financial planner, one of the most important aspects of my job is making sure that my clients make the right financial decisions so that they can gain and maintain good financial health. It’s my duty to help them create the right support structures in their lives financially, for their future and that of their families.
Through the years of doing this, I’ve observed a lot. And I would like to share some of that with you here.
So, here’s the thing...
Income protection is one of the most important things you need to have to create a solid financial support system. And yet, it’s something most people don’t think about, or even know that it’s an option.
In short, income protection is about protecting your paycheck. If you get hurt, sick, or otherwise unable to work, it allows you to still receive 100% of your income for the entire period of time that you are out of commission.
And get this, not only does it cover physical health issues, but also mental health issues as well - including anxiety, depression, bereavement (grieving), etc.
The inescapable truth is that your paycheck is the biggest financial asset you have. It’s your lifeline. And there is no question, it needs to be protected.
You have home insurance to protect your house. Car insurance to protect your vehicle. Health insurance to protect your well-being. So why not also have protection for your income, the asset that allows you to pay for all of the other things above?
Here’s another thing, income protection generally costs only about 2% of one’s income. So you would essentially be using 2% of your income to protect the other 98%.
The math is simple. And when you think about it, it really is a no brainer.
Now, let’s look at the alternative...
When people end up losing their income without protection, they will generally have to downsize on everything. Many end up having to dip into their retirement money to make ends meet, or worse – go into debt.
Now in terms of coverage, you may have something somewhat similar through your employer, such as disability insurance - which covers aspects of short and long term disability. But the maximum that the best employer disability policies will cover will only be 60% of your income.
Real question for you: Would having only 60% of your income affect you or your family negatively?
Every person I have ever asked this question has said, yes. Some even say that they are unsure how they would even live.
Just imagine yourself in this position for a minute. Think about all of the things that you would need to cut out of your life (and possibly the life of your loved ones), if you had to survive off just 60% of what you make now. When you put it into perspective and apply it to your own life, it can be very uncomfortable, and even scary to think about.
Now that’s assuming that you are lucky enough to even have disability insurance through your workplace. There are plenty of people for whom this is not the case. Which means if they experience something as simple as a car accident that takes them out of work for 3-6 months, they may struggle to keep the lights on with 100% of their income being taken away.
I know for sure if this happened to me, I would be in a very tough spot, and all of my financial goals would fall short.
The weight and the significance of this is so large, that the vast majority of people can’t afford to not have it.
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IMPORTANT NOTES FOR NURSES!
Fun fact #1: Nurses have some of the highest frequencies of claims for loss of income due to injury or disability. An average nurse has 66% chance of filing a claim throughout their career. That means 2 out of 3 registered nurses will experience this! When we zoom out to look at all careers, the number lands around 30% (almost one third of all people.)
Fun fact #2: Registered Nurses, Nurse Practitioners, PA’s, and CRNA’s have discounted income protection policies compared to other medical occupations. You have a unique advantage here! Use it.
Fun fact #3: According to a 2015 NPR report, nurses are particularly susceptible to becoming disabled. Even though most disabilities are caused by illness rather than injury.
Here’s what their report showed:
"…there are more than 35,000 back and other injuries among nursing employees every year, severe enough that they have to miss work.
Nursing assistants and orderlies each suffer roughly three times the rate of back and other musculoskeletal injuries as construction laborers.
In terms of sheer number of these injuries, BLS data show that nursing assistants are injured more than any other occupation, followed by warehouse workers, truckers, stock clerks and registered nurses."
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An important thing to note is that income protection is cheaper when you are healthy and young. If you have pre-existing injuries or illnesses, this may be extremely difficult to obtain. So the sooner you get it, the better it will be for you.
If you do have disability insurance through your employer, which would cover 60% of your income, you can supplement the remaining 40% with income protection to bring you up to full 100% coverage. So getting income protection can work to compliment existing benefits you already have, not waste or replace them.
Income protection covers you even if you need to be on altered duties. For example if you needed to be reduced to 50% of your workload because of an illness or injury, you would still be able to get paid 100% of your normal income!
And as previously mentioned, income protection covers mental and behaviour health issues as well, such as anxiety and depression.
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A common question: “Ok, but I have an emergency fund. Isn’t that good enough?”
In short, no.
The reason why? It can take a very long time to save up an emergency fund - which should be the amount of 3 months worth of your normal income. But then what happens if you have to use it? You end up having to build it back up (which can take years).
Not only that, as I mentioned an emergency fund protects only the first 3 months. If you end up in a situation where you will need to be out of work for longer than 3 months (which is likely in the case of a big emergency) - income protection is what will protect you for the rest of the time you are unable to work.
But keep in mind, income protection usually takes 3 months to kick in. So, if you do have income protection, you still need to have an emergency fund.
The rest of your money should be at work for you. Let your emergency fund be for short-term emergencies, up to 3 months. And let income protection be there to protect your income beyond those 3 months. Your other money should be hard at work for you in investments and otherwise building your wealth.
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Income Protection is a necessity for everyone to have (especially nurses), even if you have money in the bank.
Your paycheque controls everything you do financially. If you lose your paycheque, you lose access to your livelihood. It can literally mean the difference between life and death. Sustainability and survival vs. financial ruin and life squandering debt. And again, it only costs a very small fraction (2%) of your income.
So if you’re ready to take a step toward your financial health in the long-term, this is something that should not be left out of your financial planning strategy.
If you need help getting started, you know I’m always here to help. I offer income protection for most occupations, including discounted access for healthcare professionals.
If you need more information about this, feel free to reach out to me HERE for a free consultation so we can figure out what is best for you.
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BONUS: Here are top 10 causes for income protection to take into effect according to the US Census Bureau:
10 most common conditions that are considered disabilities:
1. Arthritis and other musculoskeletal problems
We depend on our muscles and joints to help us move in both our everyday lives and at work. When arthritis and other musculoskeletal issues strike, it can make it difficult or impossible to work.
2. Heart disease
According to WebMD , heart disease is estimated to be responsible for a whopping 17% of all of the health costs in the U.S. today. As the condition worsens, it can become impossible to continue working.
3. Lung or respiratory problems
COPD and other lung ailments are a common reason to file for disability benefits. Lung conditions can affect people of all ages, making it difficult to breathe.
4. Mental illness, including depression
Mental health conditions, including depression, can be just as disabling as physical health conditions and are a common reason for filing for disability benefits.
Linked to other causes on this list, including obesity and heart disease, diabetes is another common cause of disability among people in the U.S.
The effects of a stroke can range from very mild to life-altering. Depending on the severity, after a stroke, the victim may not be able to work again, at least in the short-term.
The impact of cancer – and of standard treatments for it – can be disabling.
8. Nervous system disorders
Multiple Sclerosis, Alzheimer’s, Parkinson’s, ALS, Epilepsy, and other conditions that affect the brain and nerves are common and can affect both the young and young-at-heart alike.
9. Injuries sustained in accidents
Anyone of us could become injured at any time as the result of an accident at home, at work, or anywhere else. When those injuries impact your ability to do your job, you have a disability.
Yes, you read that right. While pregnancy isn’t a disability in the typical sense of the word, employers often provide short-term disability benefits for pregnant employees. If complications arise, there may also be a need for more long-term benefits.
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