Actualis



May 2009
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Another way to take care of yourself

Staying in good health is one thing. Making sure things are taken care of if you’re not is another. And it’s just as important.

There’s no denying it: even people in excellent condition can have their lives turned upside down by a sudden health problem. And yet, too few have a real strategy for handling their financial affairs should such a problem arise. Here are a few ideas to help you plan effectively.

Two life stages

In financial planning terms, everyone goes through two major stages in life.

  • Working life
    From the age of 25-26 until you are 60-65, you are considered to be in asset accumulation mode: you set aside a portion of your income to gradually build wealth. For example, without even taking indexing into account, a person earning $55,000 a year for 35 years will take in nearly $2 million over his or her working life! Your ability to earn an income is your most valuable asset. It’s important to protect it.
  • The end of work and retirement
    As you start to think about retiring, your financial priorities change: you are now in asset preservationmode. During this stage, the most important thing is to keep your accumulated assets safe.

Strategies for each stage

Practically speaking, there are various ways to protect yourself during these two stages, and at different times within each stage.

  • Your twenties
    You’ve finally landed a job! Your priority now is to make sure you have replacement income in case you are unable to work. Disability insurance is the solution. It usually gives you a net income just slightly lower than what you regularly earn.

    Your twenties are also when you want to take out a life insurance policy. By doing so now, you’ll “freeze” low premiums for the rest of your life and protect your future insurability. Also, most life insurance policies include a clause that suspends premium payments if you become disabled.
  • Your thirties
    As your family and your obligations grow, another problem to protect against is serious illness. If one parent becomes ill, that income may disappear, and so may a portion of the spouse’s income, if he or she must be away from work to care for the one who is sick. If a child is taken ill, one of the parents is likely to stop working for some time, and there may well be expenses incurred for travel and special care. Critical illness insurance will pay you a lump sum if you become seriously ill. Ideally, the amount should cover at least six months’ salary. There are policies to cover adults and/or children. Some even allow the fully paid-up policy to be transferred to children when they come of age, at which point they may choose either to maintain it or cash it out. Note that some life insurance policies allow for the addition of a critical illness option.
  • Your forties
    Now’s the time to consolidate your strategy. With your family situation stabilized, it’s appropriate to review the kind of insurance you have purchased in the past. This is when you want to increase your coverage or switch from temporary life insurance to a permanent policy, which will fix your premiums and provide protection for the rest of your life. It’s best to do this now, because it will be more expensive later.
  • Your fifties
    Retirement is on the horizon. So is the increased likelihood of health issues. At this point in your life, you need solutions that will maintain your quality of life during retirement. Remember that long-term care (whether at home or in a nursing facility) is very expensive, so you might want to consider insurance that will provide adequate support if you are no longer able to care for yourself. Doing so is a responsible act: it shows you don’t intend to be a burden to your loved ones. Why think about it now? To protect yourself while you are still insurable and can obtain lower premiums.
  • Retirement
    It’s important to review your health coverage when you retire. For example, while you will maintain your other insurance, you will no longer need disability insurance or, if you are working less, you can reduce the amount of coverage. Before actually retiring, you’ll want to check with your employer to see whether some form of group coverage might still be available to you.
Where are you in this time line?
Obviously, there is no such thing as absolute protection from everything. Also, the outline we have provided here is very basic: solutions must always be adapted to your own particular circumstances. That’s why your financial security advisor plays such an important role. No matter what stage of life you’re in and what kind of insurance you have, your advisor can help you set priorities. Most importantly, your advisor will make sure you have solid health coverage that suits your situation, your lifestyle and your budget.

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