Dan Garner* Protecting income from illness or accident is a key factor for lawyers. The costs of doing so are important, but the cost of NOT doing so can be calamitous. Yet having the income protection conversation is possibly the most overlooked discussion people avoid when talking with their financial adviser.
Having a ‘head in the sand’ attitude towards protecting future earnings from some untoward event is one of the worst things a lawyer or any other professional can do.
And yet it is one common failure that is made when professionals speak with their financial advisers.
Just as contents insurance is generally regarded as a must-have, so too should income insurance.
What Does Income Insurance Actually Do?
Income protection insurance provides cover if sickness or injury stop you from being able to work and earn a living. Ideally, all financially independent professionals with financial goals and obligations should have it. Lawyers being prime income protection candidates.
There is an obvious growth in the risk of long-term sickness as we age. Indeed, the New Zealand Health statistics show that although we may be living longer, we are also living longer in poor health.
In other words, only 70-80 per cent of the years of life gained over the past quarter century have been achieved in good health. We have been better at preventing early death, rather than avoiding “ameliorating morbidity”. (Ministry of Health, Risk Factors Study).
A recent UK Health Department survey showed that 3 per cent of workers under 45 experienced a long term absence from work as a result of sickness, a figure that doubled among the UK’s over 45 population.
A survey for the Financial Services Council NZ, showed that one in seven New Zealand households have experienced a serious illness event over the past 5 years that resulted in an inability to work for 3 months or more and consequent loss of income.
For professionals like lawyers, there are a multitude of financial obligations and worries that need a safety net to protect you.
The need to meet regular financial commitments and maintain your lifestyle is something that anyone needs to carefully consider and if the answer is ‘with difficulty’, then it becomes more important than ever to spend time planning for the worst and insuring your future.
A good income protection policy will ensure that you receive a monthly income for as long as you need to recover if you’re off work for a prolonged period
What are the key questions you need to ask?
1. Prepare for the worst Sounds unpleasant, but it also permits you to sleep soundly at night and ultimately rest comfortably knowing you have taken a very serious ‘reality pill’. The sobering facts relating to illness and injury mean it is something you cannot afford to put off.
2. Seek Professional advice You can’t be expected to know all the options and considerations when dealing with these matters. Income protection means you need to talk with a professional who is trusted and experienced in such matters. A good income protection provider, such as MAS, will provide a free and professional consultation to make sure you are receiving the best possible advice on the sort of policy you need.
3. Know your goals and aspirations No decent financial adviser will tell you how you should live or what your lifestyle should be. That is the sort of thing you need to do yourself and then tailor an income protection policy that best suits your own requirements. Sitting down and doing ‘the sums’ is never a bad thing and places you in a good position to then get the best policy for you.
4. Sort out your specific ‘must have’ requirements There is more than simply keeping the wolf from the door with income protection. You need to work towards your specific financial goals if you’re unable to work for a prolonged period. For instance, retirement savings or saving for a first home are often key requirements and they are the things that need to be prioritised in your ‘must have’ list. A good income protection policy will help you get them.
5. Assess your minimum financial requirements Income protection policies come in many forms and you can adjust them with a good provider. For instance, MAS provide up to 75 per cent of your income and with different solutions you can even lift that to 100 per cent. Apart from the vital payments for your lifestyle you may also wish to ensure you have enough for other costs relating to your lifestyle.
6. Consider whether you require short- or long-term insurance – Income protection policies come in different forms, the most basic difference being their length. The decision on this is something you need to take with your adviser and given the considerations referred to (above).
7. Deal with quality providers There may have been horror stories about insurers that fail to pay out, argue claims and take a generally unhelpful approach at a point when you can least afford such issues. A quality, experienced income protection provider will make sure that you don’t face those obstacles when you already have enough to deal with.
A conversation about income protection is something that should not be delayed. As a professional, taking stock of your situation by protecting yourself and your family is the foremost concern for any of us.