#BTColumn – How well are we protected against the risks to our financial plan?

Disclaimer: The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY.

As we roll out our financial plan which we have developed, insurance tends not to be one of the pillars of that plan. The main reason is that we think we are “invincible,” or it happens to A, but not me and the product is an “intangible”. Very often, persons ask what will they “get back”? In this article we will seek to highlight its importance and its critical nature in managing risks.

Living exposes us to risk everyday while we are asleep or awake. We therefore are presented with choices of accepting the consequences of the possibility of a loss and self-managing or assigning the risk to a third party (usually through insurance coverage) to reduce the impact of the loss. If we should opt for the former, we would be accepting full responsibility for the loss should it occur. When we outsource the risk through insurance, we pay monthly, quarterly, semi-annually, or annually a small premium for the protection. How many times has an individual or family opted not to transfer the risk to an insurance company? By not doing that, the results of a risk occurrence could derail our financial plan temporarily or permanently, with wide ranging repercussions to ourselves/families/business. Some of these risks could be to person/life, assets (business/personal). Where possible, we could seek to avoid, or mitigate them, but they cannot be eliminated and hence the need for insurance.

In this article, we will address the impact/benefit of insurance coverage with respect to the following:

• Risk against premature death

• Risk of loss of income (disability)

• Risk against impaired health/unexpected medical expenses

Risk against premature death – In the words of BT Australia “Nothing is more important than your life and your ability to make a living. So, it makes sense to insure your greatest asset – You!” Life is valuable and loss of it, not only has an emotional impact, but the financial impact based on the individual’s circumstances i.e., partners, children at school or university, mortgage or other indebtedness and extended family can have a devastating effect on the household(s). There is also loss of income to any associated household. A critical benefit is that the insurance pay-out which is tax free provides an immediate injection of income available to the family of the deceased to cover immediate and future expenses based on the level of coverage. Therefore, the assessment of the level of coverage which is based on replacement income should be reviewed with the Advisor from time to time based on life changes and affordability. Adequate life insurance coverage in place assures that the family could maintain a similar lifestyle to which they are accustomed to before the risk occurred.

Risk of income (disability) – The National Insurance Scheme (NIS) provides disability income protection to contributors who are unable to work due to illness or injury. The level of benefit is tied to a percentage of the employee’s insurable earnings currently capped around $4,880 per month. The resultant effect of the benefit would be a lesser take-home pay. Where the individual’s earnings exceed the maximum insurable earnings, the impact of the lesser take-home pay would be even greater. Consider if you think your budget is currently stretched, how could you manage on a reduced income? Is financial hardship lurking? According to Dave Ramsey “Your
greatest asset is your pay cheque. Disability insurance protects you and your family if you are unable to work by providing income which will help pay your bills and take care of
your family. It is just as important as life insurance.”

Risk of impairment of health – In a country with such a high level of non-communicable diseases (NCDs), attention to health care and preventative health care is essential to living a healthy life. Employers may provide the option of a group medical plan as an employee benefit which covers medical, dental and vision. Given that it is a benefit, the monthly premium is shared between employer and employee or in some instances may be fully paid by the employer. Employees without this benefit, self-employed, semi- retired or retired would need to seek individual health plans. In this instance the full cost is borne by the individual. Some persons rely on the public health care system, which is challenged especially since the COVID-19 pandemic has displaced hundreds of previously employed persons who now rely on public services. In addition, the medical human resources have proven to be inadequate in the public system.

In this month of October, we are recognising Breast Cancer month, and there were recently three featured articles on breast cancer survivors – Joy-Ann Joseph who is a wife and a mother of five daughters, Stephanie St. Hill a wife and mother of an adult son and Jamie Stoute a wife and a mother of two young daughters. Mrs Stoute reported that “we have a strong family history of cancer on both sides of the family.” It was against that background that she commenced certain tests early and decided to have a double mastectomy. In her case, the reality of the double mastectomy came much earlier than she had planned.

No information was provided in
the said articles on the medical costs but given the various figures we have heard from time to time depending on the type of cancer, the associated treatment could extend into a $100,000 or more. Therefore, determining your level of benefit coverage is important when selecting from the options the plan holder presents.

A further type of coverage which is available in another plan but complements the health insurance plan is “critical illness.” Unlike the health plan which pays out against individual medical bills, the “critical illness” plan pays a lump sum benefit based on being diagnosed of any of the seventeen specific illnesses covered in the plan. Such illnesses include heart attack, stroke, some cancers, coma, major burns, among others. The lump sum provides additional financial support to the patient in meeting commitments. Therefore, the financial plan receives aid in avoiding derailment of our goals.

Should you consider skipping insurance, you need to ask yourself “Am I financially able to self-insure?” If your response is no, then you should begin to ascertain how and when you can afford to manage your risks.

Life insurance combines two
financial planning functions: that of
shifting risk and savings to build wealth. Therefore, the value of insurance whether it is for protection of income, family or health should be a priority.

Audrey Reid is a financial services certified professional.