The real question to ask yourself is how long would your company keep you on payroll if you were not fit to work for them anymore? Of course, good employers would keep you on payroll for a few months months to give you time to recover. But at some point, should you not recover fast enough, they have to make a business decision. This is where the income protection insurance kicks in.

How does it work?

Income protection will protect your greatest asset… your income.

It can replace up to 75% of your gross revenue, and kicks in when you need it most: when you are ill or injured and unable to work. Thanks to it, you can focus on recuperating and getting well again while you know a regular income keeps coming in your way.

Technicalities

You can chose your deferred period – the number of weeks you have to wait before your insurance kicks in – so as to manage your premiums. Of course, premiums decrease as the deferred period increases.

You can also chose to insure your income for different periods of time. Usually, you can opt for an insurance covering you for 2 years, 5 years or even, until your “retire” at age 65.

Of course, insurance companies being insurance companies, most of them set a number of exclusions to their policies. Benefits may not be payable for accidents or illness arising because of drugs, alcohol, wars, pregnancy, and self inflicted injuries.

Three Advices

I hope these few lines helped you understand better what insurance protection is all about, and how it can help you. To wrap this up, here are three advices I give on a regular basis to people who think they don’t need it.

1. Don’t assume that you don’t need income insurance (or additional coverage) because you’re young and healthy. If you are under 35,you have 1 in 3 chances to be disabled for more than 6 months during your career
2. Even if your company is generous and provides with an income insurance benefit, don’t assume that it’s necessarily enough to cover all of your income replacement needs. Maybe it is. Maybe it isn’t. Take a little time to calculate your needs appropriately so as not to discover your income protection falls short when you need it. I quite like this calculator: MBF Calculator.
3. If you have a need for insurance, lock in coverage early, when the need first presents itself. If you wait too long, your flawless health history may deteriorate, and your rates will rise accordingly. Worse, should you health deteriorate or you suffer from a serious chronic condition, you may be unable to insure yourself down the road.

Stripped down to its core, a life insurance provides your loved ones with cash after your death. This money can help your loved ones meet many important financial needs like your funeral costs, your children’s education, your spouse’s daily expenses and retirement plans, and much more. It gives ensures the people you care about the most will be provided for, even if you’re not there to care for them yourself.

The first question you need to ask yourself is whether you need a life insurance or not. To figure this out, you need to imagine the worst case scenario. What would happen to your loved one financially, were you to die tomorrow?

To help you answer this question, you will find here under a few common scenarios I come across regularly. So whether you’re in your 20s, a bit older, a bachelor, married , have children, or not, you will be able to make up your mind whether you need a life cover or not.

You’re Single
If you are single, you don’t really need a life insurance as no one depends on you financially. I only see three reasons for a single person to get a life insurance: (1) when you support your parents or siblings; (2) when you carry significant debt that you wouldn’t want to pass on to your family; (3) As you can guess, the best time to get insurance is when you don’t need it. And you need it least when you’re young, healthy and have a good family health history. So it can make sense to lock in coverage while you’re young and single, eliminating the risk of your not qualifying later in life because you’re older and not as healthy as you once were.

You’re a Couple
Many start thinking about getting a life cover when they get married. After all, once married you share everything with your spouse, including your finances. Therefore, it makes sense to protect your loved one should something happen to you, whether it is to make sure they can maintain their standard of life, or simply cover your debts (credit card, car loan, or mortgage). It also is a good idea to get a cover for the mother-to-be before she is pregnant as some companies don’t issue a policy to a woman during her pregnancy because of the potential health complications.

You’re a Family (Parents + Kids)
This is a no-brainer. Unless you are very wealthy, or your spouse family is, the only way to ensure your families well being is to get a life cover. And do not under-estimate the importance of getting a cover for your stay-at-home spouse. The replacement value of contributions such as child care, cooking, cleaning and other household activities are often underestimated. Think about your quality of life, or your partner’s, and get a cover for both of you.

You’re a Single Parent
If you don’t have a life cover as a single parents, go get one NOW! Your children’s financial future rest on your shoulder. What does happen if you’re not there anymore?

You’re Retired
Once retired, you don’t really need  a basic life cover *. Nevertheless, a life cover can still help your family as its proceeds are payable immediately, ensuring your beneficiaries can take care of funeral costs, and other debts without having to hastily liquidate your assets.

You’re a Small Business Owner
As a small business owner, you have one more reason to get a life cover. What would happen to your business if something happened to you tomorrow? Or maybe to your partner? Or a key employee? You got life cover options like a buy-sell agreement or a keyman insurance which can provide you with enough security and flexibility to help you get through these tough times.

At the end of the day, Life Insurance is the best way to ensure your loved ones well-being. Knowing when to get one, and why you get it, will help you define and optimize your estate planning. Now, did this post make you think about your current life cover? Do you plan to review it any time soon? If so, do you think I missed something here? Please feel free to react in the comment section here under.

* I am not discussing ILP cover and other schemes shielding your assets from the tax-man. I am focusing on simple, stripped down, life cover.

What we fail to realize is that when we get an insurance, we are not only protecting ourselves. We are also protecting our families. Let me explain.

Should something happen, a medical problem, an incapacitating event, or worth, a fatal one, we still need to make sure we have a roof, a table, and food on it. Kind of like the The Ant and the Grasshopper fable from Jean de La Fontaine.

Luckily, most of us have family and loved ones’ who will not let us end up like the Grasshopper. But in the end they are the one who pay for our “dancing”…

This tend should strengthen in 2009 thanks to the global stock market corrections and dramas we experienced in 2008. One of the good thing from the current melt-down is it is getting people to think.

After trying to position their portfolio so as to weather the markets, and building up their emergency funds and cash reserve to prepare for a tough 2009, many will think hard about their personal finance situation, and will realize their protection needs.

At the same time advisers may also start pushing protection products more, as hedge funds and offshore investments platform may suffer from the Madoff effect. One thing for sure, William Russell will push them to:

The fear of global recession has made many expatriates and their advisers focus more on protection products than investments and we are seeing strong growth in demand for income protection plans as well as life insurance and international PMI.

While it is likely that some international businesses with expatriate employees will rationalise their operations, the market is huge and unlike domestic PMI provision, which has become commoditised, the scope for market growth and increased product penetration remains considerable.
James Cooper – William Russell Sales Director

I received a lot more email asking for advices and insurance portfolio review over the past few weeks than I used to in 2008. A good sign in my opinion as expatriates are starting to open their eyes and realize their needs.

Of course, feel free to contact me should you have any question…