The breadwinner’s dilemma

By Finbar Garcia LUTCF, FSS, MFA

Many years ago, it was the norm that the husband would work while the wife stayed at home and be the ideal housewife. However, as years have passed by and things have changed, both spouses are now working or forced to work as they need the joint income. This is mainly due to the cost of living and the many goals they have planned, including starting a family in some cases.

How many times have you heard or read about the breadwinner’s early demise, either due to death or critical illness. These types of situations would certainly put families in serious financial difficulties.

Strangely enough, this practice still exists, and many families must endure hardships along with life’s struggles.

Understanding the depth of these unwanted and unexpected situations can really cause persons to wonder how these families are making out. To help you appreciate the value of insurance, both life and critical illness, let me highlight some critical areas of concern.

Your income

The sudden passing or illness of any income earner will cause an immediate decline in the family’s lifestyle. If you were to consider insurance as the ideal protection against these two perils of life, then you need to look deeper into how it’s calculated and the value it brings to the survivors.

No one likes to hear about life insurance, and I can fully understand that, but if you were to consider it as ‘your income protection insurance’, then the real value will be established.

There are many ways an adviser can assist you with the amount of income protection you may need. However, the safest is the interest rate factor method. This method takes into account your annual earnings, divided by the current interest rate on fixed deposits. So, for example, if the breadwinner worked for $108,000 annually, ($9,000 per month) then divide that by 2 per cent interest, it will show how much income protection cover is needed for the breadwinner. In this case it’s $5,400,000.

The higher the interest rate, the smaller the coverage needed. This amount may be out of reach for the average income earner, but the best starting point will be 50 per cent of that figure.

What do you have to lose? Your house, your family’s dignity, your children’s future education, loans being called in, hire purchases being repossessed. Why place this burden on your family, when you can transfer that to your income protection insurance policy for ‘cents to the dollar’? This can be worse if you rent, as your family may have to find a cheaper rental or area to live.

Asset protection

We work, we save, we invest in a better tomorrow for our family and ourselves. In doing so, the biggest asset that we forsake at times is our health. Another one of the breadwinner’s dilemmas is becoming critically ill. The best way to prepare for any unforeseen medical condition is to review your family’s medical history—on both sides of the family.

Early onset of any critical illness on either side should be an indicator that you need to check yourself. Just imagine, a breadwinner or any working spouse being diagnosed with a critical illness, worse if it’s a single breadwinner. The family would instantly be faced with serious decisions which must be made as quickly as possible.

As a norm, all your fixed monthly mandatory bills will have to be met first. Then any other expenses that you can adjust to reduce expenses, all this while trying to raise some funding or selling off some items to get money for your medical expenses.

Some may be fortunate to be part of a group medical plan at their place of employment, but those plans don’t pay your monthly living expenses. You may have to make a large outlay of medical costs, then wait to be reimbursed thereafter, just adding to the already stressful financial situation.

Having a Critical Illness policy as your ‘personal asset protection plan’, you can now enjoy not having to worry about your bills not being paid.

Here is the plan.

Divide your expenses into three categories:

1. Fixed expenses that must be met monthly
2. Variable expenses, these that you can control or reduce
3. Discretionary expenses, these that you can do without in the event of

Now, add the first two sets of monthly expenses, maybe a small part of your discretionary expenses then multiply by 48 months. This is the average length of time someone may need to recuperate from a critical illness.

The total you get will be added to your critical illness protection plan as monthly expenses for 48 months. You can use 60 months if needed.

Now you add a minimum of $750,000 for all your medical expenses. The total derived will be your Personal Asset Protection Policy. Using the same $9,000 monthly income, let’s say the family need $7,000 to meet all expenses. They will then need $336,000 to cover four years of expenses. Add this to $750,000 medical cover, the total asset protection policy should be $1,086,000.

Remember, insurance is designed to assist the loved ones you may leave behind. That’s why it’s called ‘Love Insurance’ and a Critical Illness policy is your personal love protection.

Call me for more information on planning your financial future. Send your questions to myfinancialadvisor2020@gmail.com or call 620-1185.