Income Protection Insurance
The benefits: Income protection insurance is instant. You instantly create a net of protection for yourself and your family that might otherwise take years to save or develop.
In some cases, you can get a level of protection through income protection insurance that you’d never be able to save … imagine if you were permanently disabled at 30, but had an income protection policy that covered you till age 65.
The drawbacks: You don’t earn interest on the money you pay to income protection insurance, and it is accessible only if you are too ill or injured to work.
Additionally, you’ll need to spend some time reviewing the income protection insurance policies and deciding which is right for you.
Increase Your Savings
The benefits: If you can increase your savings to a level where they’d be able to cover you when you are sick or injured, you’ll always have that money available. If you don’t need your safety net by the time you reach age 65, you can gift it to a child for a house deposit or use it to travel.
Additionally, you don’t have a 14 or 30 day waiting period before you can start using your income protection plan to pay for the essentials of life; it is available immediately.
The drawbacks: The temptation to dip into savings for ‘wants’ rather than needs can be strong!
Increase Your Earnings
Retraining in a new profession to increase your earnings can help provide safety net cash.
The benefits: Provides personal satisfaction and the opportunity for greater fulfillment as well as more cash!
The drawbacks: Increasing your earnings is not something you can decide to do overnight, nor does it carry the guarantees that saving up cash does. You might retrain for another profession only to find that it really doesn’t make you happy, or that the market has changed and those skills are less in-demand and therefore worth less.
Additionally, you have to be more disciplined than with income protection insurance – those that earn more, on average, tend to spend more.
Decrease Your Financial Commitments
Rent a home instead of buying one. Downsize both your house and your number of possessions. Switch to a prepaid mobile instead of getting a new phone with a plan every year. Choose an internet plan without a contract. All of these steps, and many more, can help you decrease your commitments to increase your financial security.
The benefits: Decreasing your outgoings can have a massive effect on your financial health … probably much more than you realise!
The drawbacks: If something major happens to your health, it will still be a disaster … just a disaster of smaller proportions than otherwise. Income protection insurance helps remove the possibility of ‘disaster’.
Go to the MoneySmart Website for more information.