There are plenty of ways to fall behind with your debts, and they all end up with the same unwanted result – people chasing you for money.
Some things can’t be helped, like being laid off from work or having other large expenses pop up expectedly. But falling behind on your repayments due to injury illness is definitely one cause that we can protect against.
For many of us, especially if we are casual, contract or self-employed workers, if we cannot work due to injury or illness we won’t get paid. If we don’t get paid we can’t pay the bills, and things can quickly spiral out of control.
Thankfully there are a number of inexpensive insurance products that can help to protect us against these unforseen events.
Temporary illness or disability
One of the common reasons why people fall behind on their bills and debts is because of an absence from work. You only need to be away from work for a month or less before you can find yourself in financial trouble.
Income protection is a type of insurance that can replace up to 75% of your income if you are unable to work due to injury or illness, and the funds can be used not only to manage your bills and repayments, but can also help to keep a roof over your head and food on the table.
A basic income protection policy needn’t be expensive, and in most cases it will also provide you with a tax deduction.
Critical illness
Major illnesses can send people bankrupt and into financial ruin. There is a double whammy of not being able to work and earn money, combined with extra medical bills that you need to find money for.
Trauma insurance can protect you in this situation by paying you a lump sum if you suffer from a serious illness such as cancer, heart attack or stroke, along with dozens of other specified conditions.
The lump sum paid from a trauma insurance policy can be used to pay debts and other bills to ensure you can concentrate on your treatment and recovery instead of worrying about people chasing up outstanding debts and payments.
It’s not just parents suffering from critical illness that can cause financial hardship. One of the more serious and heartbreaking events that can cause financial (and of course emotional) stress is the critical illness of a child.
If you’ve ever had a critically ill child you will know that every cent is prioritised towards the child’s care. Getting a child back to full health is the priority for all parents, but sometimes this can be at the expense of paying debts and bills that can pile up.
Thankfully some trauma insurance policies include free coverage for your children, which means you can protect your family financially from the effects of a critically ill child. This will allow you to concentrate on your child’s recovery instead of worrying about money.
Permanent disability
Some illnesses and injuries can have the unfortunate effect of leaving you totally and permanently disabled. In this case you may be eligible for a Centrelink disability pension, but would this be enough to continue paying all of your bills and maintaining your debts?
There is a type of insurance designed specifically for this, and it is called total and permanent disability insurance (TPD)
TPD insurance will pay you a lump sum if you become totally and permanently disabled, and a medical professional believes that you will be unlikely ever to return to work.
In some cases you may still be eligible for a Centrelink pension, but the funds from your TPD insurance will enable you to immediately repay all of your debts and give yourself a healthy cash buffer.
Life insurance
Whilst illness and injury can have a profound impact on a family’s financial situation and their ability to pay their debts, the death of a family member can be the most financially devastating loss of all.
Life insurance is the most effective way to protect against the financial hardship that often results from the loss of the main income earner.
The funds from a life insurance policy can be used to repay all debts and mortgages, as well as covering expensive funeral costs. The policy can also provide a strong cash buffer for the difficult times ahead.
But isn’t insurance expensive?
Premiums for life insurance and associated covers such as income protection can vary greatly depending on your needs.
A comprehensive package can prove expensive for some families, however a basic package can be had for a small monthly outlay, and in the event of something going wrong it can mean the difference between easily covering your debts and bills, or having the debt collector knocking at your door.
Using superannuation to pay for your insurance
If you don’t have sufficient cash flow to pay for insurance, it doesn’t mean you have to do without the cover.
Some covers including life insurance, TPD insurance and income protection can be paid for using the funds from your superannuation.
There are a few restrictions when structuring your insurance in this way, but for a standard insurance package you may find that holding the cover in your super is a great way to protect yourself and your family financially without affecting your cash flow.
Managing your debts using insurance
There is no doubt that the right insurance can help you to manage your debts and other financial responsibilities in a stressful time of illness or injury.
Insurance cannot save you from serious injuries or illness, but it can certainly help to save you from the financial consequences of these events.
About Shane MooreShane is a former financial adviser who has been in the finance and insurance industry for over a decade. Shane holds numerous industry qualifications and is a Senior Associate of the Australian and New Zealand Institute of Insurance and Finance.
