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September 12th, 2013

Preparing financially for unexpected illness, injury or death


As much as we hate to think about it, life doesn’t always go to plan. Unexpected illness, injury or death could strike at anytime and leave your family, spouse and even yourself in some serious financial trouble. The financial toll on you and your loved ones can be crippling.

Having the right measures in place can provide you with invaluable financial support if the unexpected happens. Insurance, a ‘rainy day’ or emergency fund and budgeting are all easy, affordable measures you can put in place to make sure your financial needs are addressed in the event of an unexpected illness or death. If you think life insurance isn’t something to be concerned with ask yourself this question: If you were to pass away, could your family maintain their quality of life to an acceptable level? Could your spouse and children afford to cover your outstanding debts and live from week to week without your income? The answer is probably no.

Similarly, medical insurance ought not to be a discretionary matter. Employer-sponsored group health plans should be supplemented where necessary with your own critical illness insurance. You should also ensure that you have disability insurance coverage in place. Although you may survive or recover from an unexpected illness/injury, your finances may not if you are not adequately insured given the cost of medical care and the potential for lost income.

On the life insurance policy, the first thing you need to determine when you look for a life insurance policy is how much you need to be covered properly. This amount is different for everyone depending on your debts, savings, assets, children and income, for instance. Basically, you need to think about covering your debts, mortgage, funeral costs and education fees for your children.

With respect to medical insurance, coverage can be related to what premium can be reasonably supported by your income while taking into account the full cost of care/treatment in the event of a major medical condition or event.

Another way to mitigate against a debilitating event is investing a set amount of money each month in an emergency fund. This enables investors with tight budgets to invest small sums on a regular basis without worrying about their portfolio. While small contributions may not seem impressive at first glance, they enable investors to have the peace of mind if in case a tragedy strikes.

Setting aside three to six months’ worth of normal living expenses in an emergency fund can assist in cushioning your life’s unexpected turn. If you are single or if you have a family but only one income provider you may want to increase this to a year. This will provide security while you recover from any emergency that may affect your income.

To meet this requirement, consider making regular subscriptions into the TT Income Fund, a short term investment vehicle (6 months – 1 year), which allows you consistent returns on your investment as well as easy access to your funds and is a disciplined way to build savings towards an emergency fund. Having a low initial investment of TT$20 per unit means that creating an emergency fund is within reach. Interest is compounded daily and credited quarterly, so you begin earning income as soon as your funds are credited to TT Income Fund.

Consider too the Growth and Income Fund (GIF), a medium to long term investment vehicle, specifically designed to provide the investor with the potential to earn capital growth and dividend income and a price guarantee feature which affords investors protection of capital, once the funds remain invested for a minimum of three years.

By investing in shares of local companies trading on the stock exchange, government and government guaranteed bonds, short term securities and foreign equities, investors can benefit from the GIF by utilizing their investment income to cushion the impact of a personal calamity. UTC’s US$ Income Fund, a short term investment vehicle that seeks to achieve its objective by investing in a diversified range of moderate and quality fixed income securities, offers capital preservation as well as current income and can be extremely helpful in relieving the financial worries for you and your loved ones.

If you think you can’t pay your debts because of your changed circumstrances, then inform your creditors of your situation and find a workable solution – it may mean refinancing your mortgage or consolidating your loan portfolio. Above all, don’t avoid your financial responsibilities in a financial emergency. Do not try to run away from your creditors and your debts. If you do, your crisis will only deepen.

Unexpected illness or death can affect your financial future and force you to change the way you think about and handle your money. The best way to handle this is to prepare for the unexpected in advance. We at the Unit Trust can help you fashion a portfolio to suit your needs. It does mean careful financial planning, assessing your current plan and making changes – and keeping your wits to get past the turmoil.