Thursday 21 June 2018

How many paydays away from financial uncertainty if disaster strikes are you?

'So much of what you hear about in financial news has virtually no impact on you, but what does have a massive impact are the real-life events of you and your loved ones.' Stock photo: GETTY
'So much of what you hear about in financial news has virtually no impact on you, but what does have a massive impact are the real-life events of you and your loved ones.' Stock photo: GETTY

Karl Deeter

How ready are you for uncertainty? A recent survey by Irish Life found that half of people working in Ireland feel they are just three paydays away from financial uncertainty.

Half of adults overall claim their household would struggle financially if they suffered a long-term disability or died.

So much of what you hear about in financial news has virtually no impact on you, but what does have a massive impact are the real-life events of you and your loved ones.

Financial news headlines are a distant second to trying to find consumer solutions to real risks, so here are a few ideas.

The first obvious one is life cover, if you are single and have no dependents it's not so important, but if you do have dependents then it is.

Level-term policies are cheap and any good broker can show you how to get further discounts on them.

Even without dependents you may want to cover for the financial impact of serious disease or long-term disability with things like serious illness cover and permanent health insurance (PHI).

The former pays a tax-free lump sum if you have certain illnesses, non-communicable diseases being the biggest (cancer, stroke, heart attack), the latter pays you a monthly income after a certain deferred period.

You could engineer a PHI policy to just cover your mortgage, which is often a person's greatest outgoing. If you had a loan that was costing €1,500 a month then a policy that paid out about €20,000 a year would cover that and a typical house insurance and life insurance.

The monthly cost is about €40 but you get tax relief on that, so it could be more like €32 after you factor that in.

Insurance is all about acknowledging a risk and choosing to mitigate it at the lowest possible price.

If one in four will have a non-communicable disease prior to age 60 when life expectancy is 76 for men and 81 for women then it shows that those diseases are statistically more likely than death and yet we often insure for death and not for events that happen in life.

This is a mistake, if you don't want to insure against uncertainty you can try to create a savings which you keep aside to deal with the unknown.

But the problem there is that savings of after-tax income take time to build and once they are used up they are gone.

I have yet to meet a person who likes paying for insurance, but I have met many who were damn glad they had it when something went wrong.

@KarlDeeter is a financial adviser and compliance manager atmortgagebrokers.ie

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