Common Risks to Your Financial Freedom (and How to Avoid Them)

It is extremely important to know the Common Risks to Your Financial Freedom and how to avoid them. In my day to day profession, I have the opportunity to meet individuals and families throughout Hamilton, Burlington, Oakville and surrounding areas. I introduce myself as a “Wealth” or “Financial Advisor. Some clients look at different investment options, while others are interested in looking at life insurance options, or discussing the need for critical illness or disability insurance policies in case of accident or sickness. I consider it my job and responsibility to make my clients aware of the 3 most common risks to financial freedom, and protect them from these risks to make sure they have the peace of mind that they have a sound financial plan.

In this article:

• What are the 3 common risks to financial freedom?
• Risk #1 — Living Too Long
• Solution #1: Consider Investing
• Risk #2 — Dying Too Soon
• Solution #2: Finding the Right Life Insurance Policy
• Risk #3 — Becoming Critically Ill or Disabled
• Solution #3: Get Critical Illness and/or Disability Insurance

What are the 3 common risks to financial freedom?

What are the 3 common risks you may be asking? Well, to put it simply, the 3 risks to financial freedom are:

• Living too long
• Dying too soon
• Becoming critically ill or disabled

Living too long

One might ask: “Why is living too long a risk to my financial freedom?” Although living a long full life is quite the blessing, there can be some tough financial strains for those who find themselves living for multiple decades after their retirement. Most Canadians tend to retire at 65 while others do it earlier or later, unfortunately CPP and retirement benefits like OAS and GIS simply aren’t enough for many to sustain a comfortable financial situation for decades to come.

Dying too soon

Unfortunately, it is very common that people die earlier than expected due to unforeseen circumstances. This can be a huge burden on those who have a family or loved ones that they take care of, those who have debts, or those who have a mortgage and other large financial responsibilities.

Ask yourself, have you actually protected yourself against each of these 3 areas? If your answer is no, please find below the 3 most common risks to your financial freedom, and how to protect yourself from them.

Becoming critically ill or disabled

Although it is out of anyone’s control, the possibility of getting sick or disabled is quite high in Canada whether it may be from unhealthy lifestyle choices, hereditary conditions, or accidents. There are huge financial strains from critical illness and disability. Ask yourself: if the primary or secondary income earner in your family is you and you become critically ill or disabled and are unable to return to work, are you and your family financial protected?

Risk #1—Living 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, or chat with virtually, the #1 concern they have is: “am I going to run out of money?” The chances are honestly slim, lots of Canadians don’t open an RRSP early enough nor do they maximize their contributions year over year either. Thus, there can be a nice retirement savings from their RRSP or LIRA but maybe not enough to last you for multiple decades after you retire. The OAS/GIS and CPP that is provided by the government is a small amount of income which truthfully is not enough for many who might be continuing to support their families, pay off their mortgages, or have any outstanding debts. 

Solution #1: Consider Investing

Fortunately, company and government pension plans 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 are offered by many financial institutions, such as principal protected note investments, annuities or permanent cash value life insurance policies can help supplement income to avoid the risk of outliving your money.

Contact Protect Your Wealth today to learn more about investments to protect your financial freedom! 

Risk #2—Dying Too Soon

Unfortunately, the saying “life is short” can have a literal and devastating effect, both emotionally and financially, for your surviving loved ones. While nobody can be replaced, ensuring there is a plan in place to protect against financial loss in the case of your death 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, and only one spouse was 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, because they are without life insurance. 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 and other financial burdens.

However, this risk of course varies at different life cycles. The retirees I meet do not have the same risks associated as a family with young children. These retirees are still susceptible to being financially impacted by the premature death of a spouse. For example, a reduced pension due to premature death could leave the surviving spouse in a devastating financial situation. Whatever the situation, this risk must be addressed.

Solution #2: Finding the Right Life Insurance Policy

Luckily, there are ways to plan for premature death and to secure the financial future for your loved ones. The solution to not risking the financial freedom of your loved ones is to get a life insurance policy that is personalized to best fit you. There are many different kinds of life insurance policies that fit a variety of cases and meet a variety of needs. Life insurance is crucial to ensure that in the case of your death, your loved ones are not left behind with financial burdens. Consider these situations: maybe your children want to attend post-secondary education, maybe your mortgage is not fully paid off, or maybe you simply want to leave money behind to ensure your loved ones do not struggle after you pass away. All of these situations, and many more, would not be a burden if you have life insurance to ensure that your family’s financial freedom is not at risk.

To learn more about if life insurance is right for you, read our article on 10 reasons why a person would need life insurance or contact us for professional advice in picking the life insurance policy that is right for you.

Risk #3—Becoming 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 and overlook the reality of getting sick or becoming disabled.

Solution #3: Get Critical Illness and/or Disability Insurance

Critical Illness and Disability Insurance policies help protect against this very evident risk. The reality is that 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. The average cost for a disability insurance policy 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 a 10 year or 20 year term or level cost for life. Unlike life insurance policies, critical illness policies have return of premium riders (benefits) which allow the insured to receive back 100% of premium paid if they do not get sick and would like their premiums refunded after a certain period of 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 the 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. Contact us now to see if Critical Illness or Disability Insurance is right for you, also read our article to find out if Critical Illness Insurance is right for you. 

Don’t Risk Your Financial Freedom, Contact Protect Your Wealth Now. 

Read our blog post about How to Get the Best Life Insurance Policy and Rates in Canada to find out what kind of life insurance is right for you, and find one that makes sense for your financial situation. Consider the different kinds of critical illness and disability insurance in Canada by reading our Disability Insurance in Canada Guide.

Ask yourself, are you protecting yourself and your loved ones from these 3 most common risks to your financial freedom? If not, it is now the time to discuss how to secure your financial freedom with a licensed professional.

Contact Protect Your Wealth today to learn more! We proudly service clients in Burlington, Dundas, Hamilton, Oakville, and the surrounding areas.