Covid-19 shows why you need to prioritize protecting your income
Few could have predicted the impact the coronavirus is having on the world, and, while there are many uncertainties that we’re still grappling with, there is also a growing realisation of how important it is to protect what we have.
Hopefully, for most of us, any current impact on our ability to earn an income is temporary. While the majority of Covid-19-related loss of income to date has been because of business interruption, it does put the focus on the importance of preparing for loss of income from illness or injury – even more so if such a loss is permanent.
Loss of income can be devastating when you’re in your prime working years as you have so many more years of earning potential ahead of you. However, many twenty-somethings may have an ‘it won’t happen to me mindset’, which means they don’t make provision should the unthinkable happen.
Karen Bongers, Product Development Actuary at Sanlam Individual Life, advises laying a solid financial foundation to protect your earnings ability from the very first pay-check, “Protecting your income to mitigate against risk such as the long-term inability to earn an income, is critical. Disability cover protects you against the inability to earn an income as a result of illness of injury, and against the costs of living with a disability even if you can still work.”
Here Bongers covers some things to consider in order to prioritise your finances to also protect your ability to earn an income:
- List your expenses and carefully prioritise each according to the impact these may have on your finances in the long-term. What spending habits do you have that may compromise your financial wellbeing and how can these be replaced with wise commitments around the protection of your income, your family and your lifestyle?
- While it’s ideal to have an adequate amount of disability cover in place, it’s wise to at least take some level of cover if affordability is a problem, as opposed to being completely exposed.
- Don’t assume that disability is only linked to the chance of having an accident. Heart disease, cancer, back disorders and depression are examples of conditions that can incapacitate people and have a devastating effect on their earning ability.
- Don’t assume that your employer offers disability cover – it is vital to ask. Remember, group plans may also come with limited cover that isn’t personalised to your profile. Plus, any cover could immediately fall away should you change jobs.
- Cancelling something like disability cover should be a last resort, as the absence of it can plunge you into serious financial strain should you be rendered unable to earn.
- Don’t rely on your savings because most people’s savings won’t stretch to cover their monthly expenses should they be rendered incapacitated in the long-term.
- It can be difficult to invest in something for the long-term, but by making the right decisions early, you can set yourself up for life.
While death and funeral cover are some of the most frequently purchased types of insurance, Bongers says disability cover should also be a priority. Arguably even more so, as in the case of disability cover the disabled person needs to also be provided for. She adds, “Sanlam has revamped its disability product range to be the most comprehensive in the market and to speak to the requirements of the modern-day client.
Your financial adviser will play an important role in providing you with holistic financial advice to ensure that you’re prepared for the unthinkable. “Partnering with a financial adviser can help you to plan for the things you can control and those you can’t.”