Have you met the 3 risks to your financial freedom?
In my day to day profession, while having the opportunity to meet individuals and families throughout the Hamilton, Burlington, Oakville and surrounding areas I introduce myself as a “Wealth” or “Financial Advisor”. However, as we look at different investment options for their RRSP and TFSA accounts or look at life insurance options to protect their families in case of premature death or discuss the need for critical illness or disability insurance policies in case of accident or sickness, what I am actually doing is reducing their risk to gain financial freedom. What I should actually have on my business card is “Financial Risk Mitigator”. I consider it my job and responsibility that my clients are aware of these 3 risks and what we can do to protect against them. It is only once those 3 risks are discussed and protected against that one can have peace mind that they in fact have a sound financial plan.
What are those 3 risks you may be asking? Well to put it simply, the 3 risks to financial freedom are you live too long, die to soon or get sick or disabled. Ask yourself have you actually protected yourself against each of these 3 areas? Let’s discuss further below:
Risk #1 – Live Too Long
As modern medicine advances, Canadians are living longer lives which require a different type of planning than in years past. For many retirees, I meet at my office in Dundas, the #1 concern they have is am I going to run out of money? Fortunately, company and government pensions help assist with ensuring lifetime incomes, along with investment solutions that can ensure that one never runs out of monthly cash flow. When I discuss investment options with clients, it is critical that I ensure we do a cash flow analysis to understand what income is required and what we can do to ensure that it lasts a lifetime. Product solutions such as 100% principle protected investments, annuities or permanent cash value life insurance policies can help supplement income to avoid the risk of outliving your money.
Risk #2 – Die too soon
Unfortunately, the saying “life is short” can have a literal and very devastating effect both emotionally and financially for the surviving loved ones. While, nobody can be replaced, ensuring there is plan in place to protect against financial loss is extremely important. Typically, this risk can be addressed by some form of life insurance. Recently I met a couple from Burlington who had 2 young kids aged 5 and 3, with only one spouse working. The working spouse is self-employed and neither spouse has any sort of life insurance. If something were to happen to either spouse where there was premature death, that would leave the surviving spouse in difficult financial circumstances. Without insurance, if the working parent were to pass away, that would leave the stay at home parent in a very difficult situation financially, needing to replace the spouse’s income. At the same time if something were to happen to the stay at home spouse, this may require the working spouse to take extended leave from work, seek childcare from elsewhere or other financial burdens.
However, this risk of course varies at different life cycles. The retirees I met locally from Waterdown do not have the same risks associated as a family with young children. At the same time, even retirees can be significantly impacted by the premature death of a spouse. For example, a reduced pension due to premature death could leaving the surviving spouse in a difficult financial situation. Whatever the situation, this risk must be addressed.
Risk #3 – Get Critically Ill or Disabled
From my many years in running a financial planning and insurance practice, most often clients typically focus on ensuring against the first risk of living too long, are aware of the risks of dying too soon, but most often miss the 3rd greatest risk – getting sick or disabled. Yet, statistics show you are far more likely to get sick or injured, than dying too soon.
Ask yourself, if you were to get sick or injured due to accident or illness, would you be able to survive financially? What if you were off 1 month or 3 months or a year or for many years? The same couple, I discussed above from Burlington, has a significantly higher risk of the primary earner getting sick and not being able to work, then prematurely dying. Yet, most advisors and clients are so focused only on addressing one area of concern.
Critical Illness and Disability Insurance policies help protect against this risk. The reality is these policies are more expensive than life insurance policies. The reason I tell clients is they are good policies that work and have a far higher likelihood of paying out over a life insurance policy. Usually the costs associated is the greatest deterrent. On average cost for a disability insurance policy for example is 2% of income. However, ask yourself, would you rather get paid 98% of what you earn today and ensure you continue to receive that income or would you like to roll the dice and receive 100% today and 0% if you were to get sick or disabled?
Critical illness policies can be structured with many different features and like life insurance policies can be for 10 year or 20 year terms or level cost for life. Unlike, life insurance policies critical illness policies have return of premium riders (aka benefits) which allow the insured to receive back 100% of premium paid if he or she does not get sick and would like premiums refunded after a certain period time.
Similarly, disability policies can be adjusted in many different ways to reduce premiums, while ensuring the right coverage is in place. Options like increasing wait period, extending the benefit period or amending occupational classification can help reduce costs. With any type of insurance it is best to sit with a licensed advisor to discuss your needs.
Ask yourself, are you protecting yourself and your family from these 3 greatest risks to your financial freedom? If not, it might not be a bad time to discuss with a licensed professional how they can be of help.
Contact Protect Your Wealth today to learn more! We proudly service clients in Ancaster, Burlington, Dundas, Hamilton, Oakville, Waterdown and the surrounding areas.