Do you know what happens when things go wrong?
When we talk about personal finance, we often think of risk in terms of investment volatility. Risk extends beyond just investments.
It also includes significant life events that I like to call the "Dismal D's."
DEATH. DISABILITY. DIVORCE.
These events can profoundly impact our financial goals, vision, and legacy. So, it's essential to evaluate what could go wrong and how we can mitigate those risks.
First, let’s consider death. If you contribute significantly to your family's income, the loss of that income due to death can be devastating.
One of the simplest solutions is term life insurance, which provides coverage for a specific period. It can help replace lost income and cover outstanding liabilities, like mortgages or debts.
It's crucial to think about how your insurance payout will be managed if you leave behind minor children, as it could create complications regarding their financial support.
Disability is another risk that can severely affect cash flow. If you work for a large company, you might have coverage through a benefits package, but this can change based on your employment status.
Individual disability insurance can be tailored to your needs, considering factors like your health and occupation. Planning for disability also means having an emergency fund—ideally, three to twelve months’ worth of expenses, depending on your job stability.
Finally, as a business owner, you need to think about how your absence—whether temporary or permanent—could impact your business.
A buy-sell agreement among shareholders can outline how shares will be handled if something happens to you.
This agreement, often paired with term insurance, ensures a smooth transition for your business during difficult times.
When evaluating costs, remember that while term insurance is usually affordable, disability insurance can be more expensive but is essential—given that 30% of Canadians may face a disability between ages 15 and 65.
In my experience, purchasing the right coverage can provide peace of mind and financial security for you and your loved ones.
