How to protect your finances in case the worst happens
When life takes a wrong turn: How to protect your finances in case the worst happens
Business Post Article with Siocha Costello, Senior Protection Marketing Manager
Illness and injury can arrive without warning. And such misfortunes aren’t as rare as we think. One in five people in Ireland have a long-lasting health condition, according to the latest Census[1], and of those almost 400,000 are at work.
Unfortunately, the statistics challenge any optimism people may have “it will never happen to them”. An estimated 42,000 people in Ireland get cancer each year[2]. Heart failure, a chronic condition affecting 90,000 people is responsible for 20,000 hospital admissions each year and is set to rise.[3] Over 1,250 people were seriously injured on Irish roads last year[4].
Nobody wants to dwell on statistics like these but to completely ignore them would be unwise.
The impact of a sudden illness or injury on a person’s finances can be severe. It could mean an extended spell, or even permanent absence, from work and in turn, a substantial drop in income. Making ends meet at such a time is challenging for many households. Life goes on but so will bills, costs and responsibilities.
In general, people tend to be overly optimistic about how they would manage if unable to work due to illness or injury. They over-estimate sick pay arrangements and the support provided by the State. The State disability allowance provides financial assistance to those who are unable to work due to long-term illness or injury but this amounts to just €232 a week which is significantly lower than an average weekly wage. This would be very difficult to live on particularly if you have a mortgage or rent to pay, young children and other financial outgoings to pay for each month.
So how can people protect themselves? There are a number of insurance products available which are designed to protect people and their families from adverse situations like serious illness, accident, injury, or death – but how to know which ones are the right ones for each individual? A good place to start is to take expert advice from a financial broker who can outline the choice of products available and recommend what is most appropriate to your situation. These are big decisions which could have big consequences in the long run. But the most important thing is to give these questions some time and consideration.
An income protection policy pays a percentage of your income if an illness or injury prevents you from working. The policy will pay you an income of up to 75% of your salary after between 13 and 52 weeks, depending on what deferred period you opt for when you take out the policy. This will help you keep on top of the bills such as your mortgage/rent and general outgoings for the duration of your recovery, either until you return to work, or until you reach retirement age.
If you work for a company, you will probably qualify for some form of sick pay from your employer in addition to your minimum statutory sick pay entitlement. While any sick pay available from your employer may cover some or all of your financial commitments over the first few months of your absence, it’s unlikely that an employer’s scheme will cover you beyond six months. That’s why most people who opt for income protection insurance choose 26 weeks as their deferred period as it’s only after your employer stops paying you that you need the policy to kick in. Some employers provide income protection as part of their staff benefits so it’s worth checking with your company to understand what exactly you are covered for.
Specified illness
A specified illness policy pays out a tax-free lump sum if you are diagnosed with one of the specific illnesses or disabilities your policy covers. It’s generally purchased in conjunction with a life assurance or mortgage protection insurance policy.
Nobody expects or likes to think they may become seriously ill, but it’s something you should be prepared for, particularly if you have dependants, such as young children. The cover provided by a serious illness policy can help cover your day-to-day expenses and help you get your financial affairs in order. You could use the money to address your most immediate financial responsibilities, paying off a mortgage or discharging any outstanding debts like personal loans, car loans or credit cards. Measures like these can take a financial weight off your mind and give you the time you need to focus on the treatment of your illness. You could also choose to use the lump sum to cover your ongoing living costs such as mortgage, rent and other outgoings. You might need to take time off work to undergo treatment, to convalesce or to allow time for rehabilitation. If a serious or progressive illness means you become unable to return to your job or even to the workforce, this cover could prove crucial.
Mortgage protection insurance is designed to repay your mortgage if you, or your partner if it’s a joint mortgage, die before paying off the loan – assuming you have enough cover in place. In doing so, this type of cover gives your family the security of knowing at least their home is safe at such a difficult time.
Anyone taking out a mortgage is obliged to have mortgage protection in place. The cost of this insurance depends on the amount and duration of the mortgage as well as your age and health status.
Life insurance pays your dependants a lump sum in the event of your death. This could help your family maintain their standard of living, even though they no longer have your income.
If your family relies on your income or your role as a stay-at-home parent, life insurance is a way of making sure your family can continue to pay bills, childcare costs or loans if you were to die. Your loved ones can use this money to help settle any outstanding debts or loans, pay off a mortgage, or use it any other way to make them financially secure.
Life insurance costs are based on several factors one of which is age. The younger you are, generally the cheaper it is.
Private Health Insurance
Most people need medical care at some point. Almost half of the population have private health insurance in Ireland. Private health insurance can help you avoid public health delays and get medical care when you need it. It can also protect you from unexpected, high medical costs. It will cover all or part of any medical and hospital costs you might incur, depending on the policy you select.
Tips for getting the right cover
Shop around for your cover so that you get the most affordable and suitable insurance for you.
Get impartial advice from a regulated financial advisor. This will help you identify the type of cover most suitable for you, depending on your circumstances, health, and medical history. It will also help you identify cover or benefits which you might not need. For example, if your company provides you with death-in-service benefits, this could bring down the cost of life insurance because you may need less of it.
Be upfront with your broker – with life and specified illness cover, it’s particularly important to disclose full details of any medical condition or family medical history. Providing inaccurate information, or failing to disclose key information, when applying for such insurance can lead to the cancellation of your policy and the rejection of claims.
Understand exactly what cover you have – and when you, or your dependants, will become eligible for it.
Some of these products may come with additional benefits like free digital GP service, your financial broker can advise you on any additional benefits.
Understand the limits of your cover.
Source:
- See Profile 4 – Census 2022
- Cancer statistics
- Irish Heart Disease and stroke among leading causes of death in Ireland
- As per Garda Road Policing Statistics for 2023 quoted in article in Medical Independent in early February 2024 and Irish Times article of January 2024