4 insurance policies every smart investor should own

It's easy to ignore the risks that come with everyday life, but the truth is that accidents and illnesses can strike anyone at any time. What if you woke up one day and found out that you could no longer work due to a life-changing event? How long can your savings last before you start feeling the financial strain? This eventuality can have severe financial consequences, which is why you need to have a plan and products in place to protect your finances even if the worst happens.

Evaluate Your Risks and Needs

The first step to covering the what-ifs is to evaluate your risks and needs. You need to consider what kinds of risks you face that could cause you to lose your ability to earn an income, such as accidents or illnesses, and the amount of money you will need to cover your basic expenses, such as mortgage payments, utility bills, and groceries. Once you know your risks and needs, you can start to consider the different financial products that could help you cover those expenses.

Consider Different Types of Protection

There are different types of financial protection products you can consider whether to cover your expenses if you are unable to earn an income, or to protect your loved ones when you die.

1. Income Protection

One of the most popular options is income protection insurance, which will pay out a regular income if you become unable to work due to illness or injury.

Before taking the decision to purchase your own cover, verify whether your employer provides employee coverage and what it offers. Employer provided coverage will often fall into the category of short-term insurance, which pays a proportion of your salary for an average of 3-6 months. The proportion paid out is usually an amount between 60 – 100% of your income at the time of the illness / injury.

Long term insurance coverage is an alternative product which will usually take effect after any short-term benefits have been utilized, or after a waiting period between the time when the disability begins and the time when the cover kicks in. You can determine the period of time that the cover will pay out if you are out of work due to illness or injury and some products will even continue to pay out until retirement age.

Keep in mind that income protection doesn’t provide cover for redundancy, or if you resign from your job.

2. Critical Illness Cover

Another option is critical illness cover, which pays out a lump sum amount if you are diagnosed with an illness covered by the plan. Not only will it help you to cover your financial needs due to the diagnosis, but if you had to make expensive adjustments to your home for example, to support your lifestyle needs due to the critical illness, a lump sum payment under these circumstances could certainly prove helpful. For most of us, this couldn’t be covered by our savings alone.

You may choose to buy critical illness protection as an additional cover alongside life insurance and although it is combined into a single product, it will pay out on the diagnosis of a critical illness under the plan and will also pay out separately to your beneficiaries if you were to die.

Make Sure Your Business is Protected

If you run your own business, your financial protection plan should also include a contingency plan to protect your business income. By having the right kinds of insurance policies in place, such as business interruption insurance or key person insurance, you can protect your business against the loss of income caused by your inability to work.

3. Life Insurance

Life insurance, while not something we like to think about, is a valuable investment that can protect your family's financial future in the event of your sudden passing. A life insurance policy will pay out a lump sum to your beneficiaries after your death which can be used for whatever purpose they chose. An alternative and often cheaper option to the lump sum payment is a decreasing policy which matches the outstanding liabilities you have, such as your mortgage, which will decrease over time. Having a life insurance policy in place can ensure that expenses and outstanding debts are paid off without that burden falling on those who survive you. Even if you don’t have an immediate family depending on you financially, you may be an aunt, uncle or godparent and being in a position to leave something to the people in your life could be a gift that you wish to make.

4. Long Term Care Insurance

Long-term care insurance is another form of protection that's essential to have in today's world, where people are living longer. Long-term care can be expensive and can quickly deplete your savings, jeopardizing your retirement plan. Having long-term care insurance ensures that you get the right amount of coverage necessary to protect your finances.

Review and Revise Your Plan & Products Regularly

Once you have put together a financial protection plan, it's essential to review and revise it regularly. Life circumstances change, and with it, your needs and priorities may change too. If you experience significant life changes such as marriage, children, or buying a new home, it's essential to review your financial protection plan and consider making adjustments to ensure it still meets your needs.

Seek Professional Advice

Finally, seeking professional advice can help you build a better picture of your risks, financial needs, and protection options. A financial planner can advise you on the best financial protection products and options available, as well as the amount of coverage you may need. By working together with a financial planner, you can create a comprehensive plan that protects you and your family against the unexpected.

Investing in your financial security now may seem tedious and sometimes unnecessary. However, it's better to be prepared now and not need it, than to need it and not be prepared. Disability insurance, life insurance, long-term care insurance, emergency funds and estate planning can provide peace of mind, allowing you to focus on the present and work towards achieving your goals. The earlier you invest in your financial security, the more effective and affordable it will be, ensuring that you have the protection you need when you need it.

Don't wait until life throws a curveball, plan for the what-ifs now.