How to Insure Against Income Loss
Have you ever stopped to think about how you can’t buy an insurance policy that will protect you against the permanent loss of an income source? You can buy insurance policies for your home, your car, medical expenses, and various components of a business, but you can’t insure your personal income stream.
It wasn’t until I lost my executive position unexpectedly that this realization came crashing down on me. It was then that I saw how important it was to safeguard my family and my lifestyle against the potential for loss of income. There may not be a single insurance policy that will do the trick, but there are things you can do to mitigate your risk. Here are 4 ways to safeguard your earnings before it’s too late.
Private Unemployment Insurance
Most people know that losing a job unexpectedly can qualify you for unemployment insurance, but what most people don’t realize is that the State-run program isn’t the only option that can help mitigate the risks of wage loss.
There are also private supplemental unemployment policies available for a monthly premium. This is certainly an option to safeguard against unexpected income loss, but the policy choices are limited and they don’t usually pay 100% of lost earnings. Like most of the tips on this list, private unemployment insurance should be used in conjunction with other strategies to fully insure against income loss.
Life Insurance With Living Benefits
Next up is life insurance. Typically, this tool is meant to replace the loss of income that occurs when a person passes away. There are, however, life insurance policies that can protect against income loss while you are still alive. Also known as hybrid policies, life insurance with living benefits allows you to make policy withdrawals during your lifetime if certain conditions are met. Living benefits can often be tailored to your needs. A few examples:
Living benefit: Allows you to access funds from your policy if you receive a terminal diagnosis from a physician. You can generally withdraw a portion of your death benefit, which is then deducted from the overall value of the policy.
Accelerated death benefit: Allows you to access funds to pay for ongoing medical expenses or other needs.
Quality of life insurance: Provides access to your death benefit to pay for ongoing care required by a chronic illness.
Hybrid long-term care insurance: A combination of life insurance or an annuity with long-term care insurance; provides a death benefit and also helps cover the cost of a nursing home or other long-term care you may need.
No matter which policy you choose, you must meet very specific (usually health-related) circumstances in order to receive benefits, which makes this option less effective for those who simply lose their jobs.
Disability Insurance
Loss of income can happen at any time without notice, and the most common reasons are accidents and illness leading to disability. Yet only 28% of Americans can cover 6 months of expenses with their current savings. (1)
An accident, injury, or illness that keeps you from working can wreak havoc on your financial plans and set you back months or years. Common disabilities can even include neck, back, or joint disorders.
While many people believe they are covered by Social Security Disability Insurance or their employer’s long-term disability insurance, the coverage may be limited and inadequate or hard to acquire. Social Security benefits are usually subject to strict eligibility requirements, and employer long-term disability usually only provides coverage up to two years.
This means private long-term disability insurance is often necessary to safeguard against an unexpected loss of income.
Proactive Planning
Because each of the previous three points involve very specific circumstances and limited options, the best thing you can do to insure against income loss is to proactively plan for this possibility.
Part of my job as a wealth advisor is contingency planning. I help clients put the resources in place to safeguard their families from the unexpected. This can include things like building an adequate emergency fund, diversifying income sources, assessing cash-flow needs, and reviewing insurance coverage.
Buying insurance alone cannot protect against an unexpected job loss, but as one piece of a much larger financial puzzle, it can be effective in mitigating the negative impact of losing your income.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent.
This article is intended to assist in educating you about insurance generally and not to
provide personal service. These points don’t take into account your personal characteristics such as budget, assets, risk tolerance, family situation, or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs.
Guarantees are based on the claims-paying ability of the issuing insurance company. Riders are additional guarantee options available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges, and restrictions, and the policy holder should review their contract carefully before purchasing.
If you need more information or would like personal advice, consult an insurance professional or visit your state’s insurance department.
Are You Insured Against Income Loss?
Are you properly insured against income loss? Chances are, you aren’t. At WealthBuilders, we can help you build a contingency plan to safeguard your earnings from unexpected income loss. To learn more about us and how we can help you, please call 715-386-3735 or email info@wealthbuilders.financial.
About Dan
Dan Olsen is the president, founder, and wealth advisor at WealthBuilders, an independent financial services firm based in Hudson, WI. Before becoming a financial advisor, Dan had a nearly 25-year career as an on-air radio personality and spent several years in corporate America.
Dan helps clients build and manage their wealth to create a specific plan for retirement and loves teaching them that being wealthy is about more than just money. Through his distinct collaborative approach, he provides the financial guidance and resources necessary to help clients move forward in life and put their values into action. He loves knowing he has a purpose and that his work and effect on people and their lives matters. Through his education and 20-plus years of experience in the financial world, he has gained extensive knowledge and expertise in the financial industry, including obtaining the Series 7, Series 66 held with LPL Financial, and Life/Health & Accident insurance licenses.
Outside of the office, Dan enjoys visiting the Great Lakes with his wife, spending time with his grandchildren, fishing (and ice fishing), listening to ’70s and ’80s music, and supporting charities that address food insecurity, especially with children. To learn more about Dan, connect with him on LinkedIn.
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