I felt the need to share a financial strategy that I was taught early on in life especially as an investor and a member of Leofinace. Income protection is a fundamental tool we all need to implement in our financial plan.
The reason I say this is important is because all our investments are funded by our income. So what happens if our monthly income stream stops temporarily or worse permanently?
We have to dig into our investments like our retirement fund, liquidate equity, withdraw from our Hive wallets or other crypto assets that we had set aside for a later stage in life to enjoy.
The one thing that is as bad as or maybe worse than premature death is disability and serious illnesses like cancer, stroke, heart disease. These prevent you form working at your full capacity or completely for the rest of your life. Recovery periods can range form a month to years and you could lose your job or you may not be able to work as hard as you did before.
Medical costs are not the only expense arising out of these illnesses. Loss of income is not really covered after a certain point by employers, healthcare etc. So we need to cater for this as well.
I spoke about liquidating assets but the worst that can happen is that people end up having to sell your homes. I've seen this and its not easy for people and their families as is financially and emotionally draining.
I bought a critical illness plan early on in life that covers most major illnesses because life insurance doesn't give you a dime while you're alive. My critical illness plan gives me a flat payout of $1.5M upon diagnosis of a list of 31 diseases.
This is what I did to protect my income. At the point where my financial advisor suggested this to me I didn't really see the value in it but I'm glad I bought it then as I was around 27years old.
The amount you pay as a monthly premium is based on your age and health conditions. So the earlier you get it the better. However the price and coverage are locked for life or until the end of the coverage period.
To calculate the amount of income protection you need its easy. The rule of thumb is five times your annual income. But this is just a guide like drinking 8 glasses of water a day. So if you have financial obligations like a mortgage or dependents you may need more.
If you cant afford the coverage you need you can always add on more later. The point is to have it in your financial plan.
The good thing is that, depending on which country you live in healthcare may be free but you still have to cater for loss of income beyond certain period of time that's not covered by your employer or the state.
Health insurance provided by your employer may already have critical illness however group health plans usually have a minimal amount of life and critical illness coverage, usually worth a few months of your income.
Another thing is that the minute we lose our jobs the coverage ends. Companies frequently change their health providers depending on price, their cash flow, revenue etc. So they may end up getting a shitty plan for their employees that have inadequate coverage.
At the end of a day its a benefit they provide you that can't sustain you beyond certain amounts of time.
The onus is on you to protect your income to plan wisely.
Don't be broke, be woke.