Susan O’Mara with Milestone Advisory explains some of the available income protection options that will give more security up to retirement.
I am writing this piece as Construction Safety Week 2019 comes to an end. Hopefully, another successful week of reminders about the health and safety of everyone involved in construction. The message is ultimately about providing people with all of the relevant information available to enable them to protect themselves.
Protecting your finances is something to be mindful of also. The way to protect your finances is to save for the future and insure against the unexpected. It is that simple. But it gets complicated as there are so many options available to people.
A pension is simply a long-term savings policy with tax relief. It is the most tax efficient way to save for the future. If you have access to pension scheme, rejoice!
If you have purchased your own home, you will likely have mortgage protection and this is indeed a type of life cover. Mortgage protection will pay off any outstanding balance on your mortgage if you die, and it is designed to decrease as your mortgage decreases. This is all it is for however, nothing else is covered! If you have dependants, then mortgage protection alone simply is not enough. Death before old age is an unlikely occurrence, but it happens nonetheless, and while we cannot live our lives expecting the worst – we can be financially prepared for it.
Income protection is an insurance policy that pays your income in the event that you become ill or are injured. It can pay you until you recover, or until you retire. I often talk about longevity when I am talking about pensions, ie the fact that people are living longer and so have an increased need for income in retirement.
From age 65, men can expect to live an average of 23.8 years, while women can look forward to an average of 25.3 years. While this has an impact on saving for your retirement, it also means that during your working life, being diagnosed with a serious illness is a greater risk to you than death. The life assurance industry claims experience tells us that you are likelier to suffer from cancer, a heart attack or stroke before you retire than you are to die before age 65. In my opinion, income protection is one of the most important insurances you can have to protect your finances.
Specified Illness Cover
Specified illness cover is also known as serious illness cover. Why consider serious illness cover? It pays out a cash lump sum if you are diagnosed with an illness from one of the many serious illnesses covered by the plan – illnesses such as cancer, a heart attack, or stroke (subject to policy terms and conditions). This cash lump sum would help remove some of the financial and emotional stress associated with a serious illness, affording you the opportunity to take the time off work, to help pay for specialist medical treatment, or even to help cover day-to-day household bills such as childcare.
It may also be used to pay off debts while you are recovering. If you are diagnosed with a serious illness, you have enough to worry about. Making ends meet should be the least of your concerns.
Do you need cover?
You should establish what exactly you would do if you were hit by illness or injury. You should quantify how long your income would continue and how far your savings would stretch.
If you do not have any cover in place, and your savings are not enough for you, you might consider reviewing your needs with your financial adviser.
Susan O’Mara is a financial services consultant with Milestone Advisory. Milestone Advisory DAC t/a Milestone Advisory is regulated by the Central Bank of Ireland. For more information visit www.milestoneadvisory.ie