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WHAT’S YOUR ‘PLAN B’? 5 STEPS TO A SOUND ALTERNATIVE.

Plan B Roadsigns

We all have a plan for the future but do you have Plan B. Sometimes our plans are short-term like get home, put the TV on and open a bottle of wine; others are more medium term and might well be centered around a holiday to a dream destination; then there are the longer term dreams that for many

involve saying something nasty to the bank as the mortgage is cleared or watching their child graduate from University. This is good. This is healthy. What happens if it doesn’t go to plan? Worryingly it seems that very few in New Zealand actually have a plan B in place.

 

This page is all about setting up a sound and secure Plan B that will make you bulletproof. A number of things have to be considered when putting Plan B together and this post will also help as it gives you one strategy that I use to prioritise the policies you may need. Prioritising isn’t easy and if you need help then get in touch and I would be happy to help you out. Remember it won’t cost you anything.

 

1 – Health Insurance 

Health Insurance is the most commonly claimed policy. Customers claim throughout their lives whether it’s wisdom teeth extraction or a hernia operation in the teens and 20’s, endometriosis or vasectomy in the 30’s and 40’s, cancer treatments or coronary operations in the 50,s and 60’s or knee and hip replacements in retirement. Last year the insurance industry paid out more than $1 Billion in claims or approximately $1000 for every customer. With public waiting lists for treatment only increasing Health Insurance is becoming more of a priority for many.

The latest statistics don’t look good either. If you don’t have time to read the link here are some highlights. Private health carries out about half of all operations with patients waiting on average 44 days and more than half of surgeries being carried out in less than 1 month. Public patients can wait on average 10 months before going on the waiting list. Once on the list the average wait is excess of 144 days and only 1 in 4 procedures are completed in a month. My customers really don’t want themselves or their loved ones waiting in pain while they wait to get on the waiting list, and why should they?

It’s not just about the speed of service in the private sector that makes the difference but also the extras. Patients have private, en suite rooms to recover in, the tasty, healthy meals and the flexible visiting hours all help with the recovery.

Plan B - Red Carpet

2- Unable to Work

If you don’t work, you don’t earn so you’ll need a plan B. Especially as most Kiwi’s are only one or two missed paydays aways from financial disaster. An extended absence from work can sound nice, cocktails, golden beaches and palm trees. Not if the absence is because of illness though. Many New Zealanders think that the main reason for most lengthy absences is injury so ACC will sort them but they would be wrong. More than 4 out of 5 long term absences from work are due to illness. Sick pay in the work will cover the short term, but what if the illness drags on. Cancer treatment, a major operation or mental illness can take many months or years to recover from. Even if it is an accident ACC can stop payment if a Dr thinks you are fit enough to do any qualified job, Income Protection won’t do that.

My clients with Income Protection can prioritise recovering rather than being forced back to work before being fully fit.

In some cases Income Protection will also help if you need to look after a dependent. A good policy will cover a client if a partner, child or parent becomes sick or has an accident and needs to be looked after for a few months. This is part of plan B very few people think about.

Plan B - whiteboard

3 – Critical  Illness

I keep being told by insurance companies that the number of claims for critical illness are increasing. I imagine this is due to people living longer and medicine making events that killed survivable. This makes this part of plan B quite important. With Critical Illness Cover the big 3 of cancer (60 new diagnoses a day), heart attack (120 hospitalized per day from heart disease) and stroke are covered but that is not the full list by a long way. Most insurers cover 40 or more specific events from Alzheimer’s and Blindness to Parkinson’s and Intensive Care.

All of these diseases are really serious and may mean that there is likely a need for money, which is why it is in Plan B. It could be that the home will need to be sold or remodeled to accommodate a wheelchair. There may be a need for a disability transport, specialist equipment or temporary nurse care in the home. Clients also use it for unpaid leave to recover or take time to retrain for a less stressful job.

For me when putting this part of Plan B together it is important to think severity and deterioration. Does my customer really need the mortgage paid off if they have a mild heart attack? Probably not but they may wish a long holiday. They might want to be debt free if diagnosed with Multiple Sclerosis though. As medicine improves deterioration may be an issue when putting Plan B together. Critical Illness covers can only be claimed once in many policies and it is possible to have a mild heart attack, get a lump sum and 10 years later have a more impactful one and receive nothing. A second illness is also possible for example a cancer following 5 years after a mild stroke, this need for a more flexible policy has to be considered.

Plan B - Post 2

4- Permanently Disabled

Imagine that you can never do your job again. You have been made disabled by loss of a limb, a stroke, a crippling cancer, brain hemorrhage, Parkinson’s or some other dread disease. You are not going to be getting back to the office or on the tools again. What will be the Plan B? Are you able to retrain for another career? Can you buy a business? Is your partner going to have to look after you? Will you need nursing care? This event can be more expensive for a family than a wage earner dying.

That is why Permanent Disability cover is essential to consider when putting plan B in place.

Here’s a hint though, there are two very different policies in the market, one is “any” occupation and the other “own” occupation. Three little letters but the difference it can make at claim time is massive. “Any” literally means any job you are trained or experienced to do, this could be a huge range of occupations. SoIn other words if you can’t program computers but can work in a supermarket it will mean no claim. “Own” is specific to do the pre-disability job, can’t do your programming job and the Dr confirms you will never recover, the lump sum is paid.

So what is the final consideration for plan B?

Plan B - Post 2

5 – Life

The final consideration for Plan B is the most inevitable but is it really the highest priority for you. Let’s be honest it if you are single and have no dependents there may be no point in this cover, just enough to pay for a funeral and Kiwisaver may be enough for this. If however you have a family that rely on your income then this is an essential part of plan B. We don’t buy Life insurance because we might die but because those we love might live and no matter what excuse you have for not buying it today is going to sound pretty poor to the family the day it is needed.

Remember if you don’t trust the significant other with a large sum of money then there are policies that will pay it out in monthly amounts.

When I calculate the amount for this part of Plan B I always take a few critical things into account. It’s different for everyone, which is why an adviser is a good idea. The first is any immediate debt, like mortgage and loans that you want rid of. Then there are funeral expenses, the cost of which is about $10,000. If you’re anything like me the statement “just throw me on the compost heap.” will be bandied about but remember that the funeral isn’t for you. Then it is worth looking at how old the children are, the average cost of raising a child to 18 in New Zealand is about $250,000.  If higher education is in the plan the cost for tuition, books, accommodation and the cost of living can come in at over $50,000.

As many of you know I see Life Insurance as Legacy Insurance, it gives you an opportunity to make a difference and have some control from beyond the grave. That legacy doesn’t need to be financial though. Very few people just drop dead and a terminal illness is usually diagnosed first. Making memories may be part of a legacy that you want to leave. That is why a life insurance policy pays out, in full if you wish, when there is less than 12 months to live. So perhaps some provision should be made to make some memories.

 

So there you have it the 5 steps to a bulletproof Plan B. Hopefully you will never need it but like a boy scout it’s better to be prepared.

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