April 5

What to do if you never want your family to be poor

Whole Life Insurance

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Young families should start thinking about all the different challenges that they may or may not be facing over the next few years. You may be having children, a mortgage, educational expenses, perhaps changing careers, and many other unexpected expenses. Having that kind of responsibility means being prepared for things so that you not only survive but thrive.

I want to share with you some of the most effective techniques to make sure that your family is financially secure and will be able to stay ahead of any potential pitfalls that you may face.

Addressing the Biggest Concerns First

If you have just recently started a new family then you know that you are part of a whole now. It’s not just about you but also your spouse and children. Their livelihood and well-being need to be considered when it comes to any decisions that you make. Make sure that you have had time to discuss these issues:

The death of a family member

What would happen to your family if you or your spouse were to pass away? This is particularly troublesome for a family that has primarily one breadwinner. Even if you have two incomes, it is unlikely that you would be able to manage all the bills, debt payments, or mortgage payments on one income. How will this income be replaced? What effect will it have on your family if it is not replaced? 

The result could be devastating, particularly if you leave a mortgage behind. If your family can’t afford the mortgage payments anymore they may actually lose the roof over their heads.

An Injury to You or Your Spouse

Becoming injured can be almost as financially damaging for your family as dying. This is because not only will it result in a loss of income but it may also result in additional medical expenses that often make the situation worse. Will you be able to make debt payments? pay bills? or pay the mortgage if you couldn’t work?

Even if you can work, will being disabled make it more difficult to do simple tasks such as shopping for groceries, picking up the kids from school, or cooking dinner? Will you be able to focus on getting healthier if you are stressed out about meeting your financial responsibilities? A plan should be in place to make sure that even if the worst happens, your family will be OK financially.

You or your spouse are diagnosed with a life-threatening Illness

If you were diagnosed with a heart attack, stroke, or cancer, would that affect your ability to earn money? If so, would you be able to meet your debts, mortgages, and bill payments?

Even if you were able to force yourself to work, would that be the best decision for you and your family? Or, would it be better to focus on your recovery and regaining strength. No family should have to grapple with these questions but that is precisely what happens if they are not prepared.

You are twice as likely to be diagnosed with a heart attack, stroke, or cancer by the age of 65 then you are of dying. The sooner a concern like this is addressed, the better it will be for your family’s financial security.

Unexpected expenses

Life has been known to throw curve balls from time to time. What I mean by that, is that there is always something unexpected that seems to come up, often at the worst time. 

An example of this may losing one’s job or having some unexpected expenses to do with a property. Too many Canadians are caught with their “pants down” when something like this happens.

Renovations or finding a new career can take time and money. Using your credit cards at that time is usually not the best plan. Going into debt and paying high interest on loans will put added pressure on your family at a time when they don’t need it.

How to make sure you and your family never go broke

Up until now we have talked about the biggest risks that exist regarding your family’s prosperity. They are daunting concerns but, fortunately, each of them has a simple solution.

Here are the 4 most affordable strategies that will make sure that the biggest threats to your family’s financial security are addressed:

Family Income Protection

While you are young and healthy is the best time to apply for life insurance. Life insurance is something that you apply for through a licensed insurance advisor. Once it is in place, if you pay your premium, the life insurance policy promises to pay a lump sum death benefit if you or your spouse pass away. This money can be used to pay down debts and replace the income that would be lost if you were to die. This is a critical first step to ensuring that your family will be taken care of financially even if you are no longer there.

There are many different types of life insurance policies but the most affordable type of life insurance protection is called Term Insurance. It has these features:

  • Premiums are paid for a specific period of time (For example a 10 or 20 year term)
  • Monthly premiums are usually very affordable
  • At the end of the term the policy either terminates or the premiums increase considerably
  • This is a great policy for young families because they often have large liabilities like mortgages or income replacement

Putting a simple term life insurance policy in place will do more to secure your family than almost anything else can. It is so affordable and easy to apply for (with the help of an independent insurance advisor) that it should be a staple in your family’s security plan. Allowing you to sleep soundly at night without worrying about how your family would get by financially without you.

Disability Income Protection

As we already know, becoming injured can do almost as much damage to your family’s financial security as passing away can. Even if you have disability insurance through your employers group plan it is unlikely that it will be enough. The last thing that you want to be relying on are government benefits such as WCB or Canada Pension Plan. It is often hard to qualify for these programs and the likely benefits wouldn’t be enough to cover your lost wages.

Your best bet is to talk to an insurance broker about disability insurance.  This is a type of insurance policy that will pay a monthly benefit that is tax free and usually amounts to around 67{a03822e28c5c906589e58caafc71b922ff7b2692d58bfeefe8f12d55f85871c7} of your gross income. This should be enough (since it is paid out tax free) to cover your expenses while you are on the mend. The good news is that this type of policy is easy to apply for and depending on your health and income can be quite inexpensive.  That lets you focus on what you should be focusing on when you get hurt, which is getting better.

Critical Illness Recovery Protection

Nothing can derail your family’s prosperity quicker than if you or your spouse are diagnosed with a life-threatening illness.

What could save the day at a time like that is a lump sum amount of money that would be paid out, tax free, if you are diagnosed with a critical illness. The good news is that Critical Illness Insurance is very affordable if you are relatively young. Once this policy is in place, even if you have a major set back to your health, you receive a large amount of money that can be used to pay for medical expenses, take time off of work , pay debts, or anything else that you like.

A stress free recovery from a major illness is paramount to your family’s future and security.

Emergency Funds

Planning for contingencies is part of being a responsible adult. No one has more responsibilities than a young family in Canada. That’s why its so important that you set aside money every month that goes towards any unexpected expenses. 

A good rule of thumb is to set a target of 3-6 months of your after-tax income in a place where you can get it easily. For example, if you earn $3000 a month after taxes you should aim to have between $9000-$18000 sitting in an account that you can get to quickly if need be. This will help you avoid having to incur any unwanted debt if something comes up that you didn’t plan on.

Of all the action steps, this one may take longer than the others to implement because unless you have this money in lump sum, it could take some time to save up an adequate emergency fund. But starting sooner rather than later will make sure the money is there when you need it most.

Summary

So there you have it, a financial game plan to make sure that you have done your part by fulfilling your responsibility and protecting your family. The 4 steps that I outlined will do more to bullet proof your family against unfortunate events than almost anything else. 

These steps are actionable, easy to implement, and very affordable. Start to put this game plan in place for your family immediately so that you can enjoy the peace of mind that being prepared is sure to bring.

You can get started by getting in touch with an independent insurance broker, he will take you through a process that will surely include an insurance needs analysis, a health/lifestyle evaluation and a free no obligation quote.

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