This is a guest post by Kristy Ramirez. If you want to guest post on this blog, check out the guidelines here.
The reasons for bankruptcy can be many but it hurts most when it has been forced on you because of some event taking place that is beyond your control. This is why you should take all possible precautions to prevent you finding yourself in a position where you can’t pay back all the debts you owe. Of course the first thing to ensure is that you never borrow more than you can comfortably repay but what would happen if you suddenly lost your means to earn your income through no fault of your own, and your creditors demanded their money? If you didn’t have some backup system at your disposal you would be in trouble and bankruptcy would be hard to avoid, that’s where income protection insurance comes in.
Besides enabling you to keep food on the table while you are unable to work, income protection insurance can also enable you to keep paying your debts and therefore avoid any bankruptcy action being taken against you.
In this day and age many of us tend to live from pay day to pay day and many small businesses are run on the basis of income coming in on a continuous basis. Anything that happens to this income stream can cause concern among creditors and as soon as one takes action to get their money, the others soon follow. Once again adequate income protection will prevent such action being instigated in the first place.
Income protection therefore has an important role to play in our everyday lives. No one can confidently predict our futures as even the best laid out plans can run amok at any time. Those of us with proper income protection policies in place can avoid such a disaster occurring and get to live another day. Income protection insurance can therefore save you from bankruptcy, and should you encounter any of the following financial disasters:
- Suffering from an illness that prevents you from working for a prolonged period of time.
- Redundancy through no fault of your own (as long as this is stipulated in the policy).
- Depression disorder that prevents you from working.
- An accident that has left you injured whereby you can’t continue earning your usual income.
- Temporary unemployment (as long as this is stipulated in your policy).
Any of these occurrences can affect your ability to continue meeting your ongoing financial obligations and eventually lead to bankruptcy if you have failed to adequately protect yourself, either through savings, or through income protection insurance.
Self-employed small business owners can also benefit
If you are a small business owner you will know what could happen to your business if you were not there to keep the work going as usual. In fact statistics have shown that one in three small business operators become unable to work for at least 90 days each year because of an accident or illness. This means the business has to survive for three months with no earnings although the business overheads would remain. There are only two solutions to such a problem:
- Structure your business so that your presence is not absolutely tied to your business succeeding. This might mean the employment of another person and that might not be financially possible.
- Taking out a suitable income protection insurance policy that will ensure you get 75 percent of your average taxable income. In doing this you will ensure you are protected from running the risk of bankruptcy while at the same time claim your premium payments as being tax deductible.
Sickness benefits through superannuation are often short lived
Most workers, if not all, are for sickness benefits. This means your pay will be continued for a certain period after you find you can’t continue on the job after becoming ill or injured. This protection is often part of your superannuation but the problem here is that it often doesn’t last for long. In many workplaces the workers are only entitled to two weeks sick pay, after that they are on their own. If you are employed it will pay you to find out how long you will be paid sick pay and if you feel your finances would be insufficient to pay your ongoing living expenses after that time, you should look to taking out income protection insurance that can take over when your sick pay is discontinued.
Check for cover regarding loss of employment
Although some insurers will cover you for compensation should you become temporarily unemployed or even retrenched from your regular job, this is not commonplace. If you are looking for this type of protection you must make certain that the policy you are contemplating taking out makes provision for this type of cover. Policies that do cover you for loss of employment will not pay out if you have been fired from your job because of some illegal or criminal activity.
Before taking out any income protection policy don’t be afraid to ask many questions of exactly what you are covered for and what the circumstances are that would prevent you from getting a payout. It is of no benefit if you pay all your premiums regularly and on time only to find out that you are not covered for a particular event when you come to make a claim.
Kristy Ramirez writes for Life Insurance Finder where she helps people keep their income protected with salary protection insurance.