Why Millennials Need Income Protection
If you are part of the millennial group, you may be familiar with the debt burden of student loans, car loans and credit card debt. In a recent Facebook study, almost half indicated that their most important financial goal is paying down debt. But paying down debt requires income. What if that income is interrupted by sickness or disability?
It doesn’t help as you start careers at a time in the economy when many employers no longer offer disability insurance. Compared to the baby boomer generation at similar ages, far fewer millennials own homes, vehicles or are married. Hence, the importance for life insurance or creditor insurance protection is secondary to having adequate income protection coverage.
There are a number of reasons for millennials to consider disability coverage. Many say saving for retirement is their second most important financial goal so your financial assets may be relatively small starting out. But many are also on the road to affluence, as more than 47% of them have a postsecondary degree, so you have the potential to earn higher incomes down the road. Hence the need to get sound planning advice early for the time when your balance sheet grows.
Based on current numbers, over 25% of today’s 20 year olds will suffer a disability before they retire, and one in three between 35 and 65 will be disabled for more than 90 days. There are currently about 200,000 Canadians in their 20s, 30s, and 40s receiving disability benefits, for an average time of 31 months. About 90% of claims are illness related issues rather than from accidents. This is scary, considering that 75% of all Canadians don’t have enough savings to cover six months of bills!
Why the need for paycheque protection? Paycheck protection is hugely important at this stage in life. The significant amount of student loan debt repayment in the monthly budget is one factor, then add to this that the typical millennial frequently changes employers. The new employer may not include disability insurance in their benefit package or is watered down, requiring some degree of top up. Either situation may leave you uninsured for your needs. When marrying and acquiring assets later, other forms of financial protection may need to be delayed.
Simplifying the products: If you are in this category, you need to ask yourself some questions. Like, how much income protection do you need? How long will your savings last without income? How long do you want to rely on the benefit? How do you feel about underwriting requirements? Are you open to the full gamut of medial underwriting, or is a guaranteed issued product a better fit? And finally, what can you afford?
It’s important to build a relationship with a financial advisor built on trust and understanding. A financial advisor can provide advice and information about personal finance topics, budgeting, retirement savings goals and other topics along the way. There are many sources of online advice these days, and some millennials may feel that financial professionals are only for your parents. But financial advice is different than other types of information. It should be the result of analysing your whole picture, perhaps after you have done your online research.
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