Protecting Against Cracks in Your Financial Foundation

When you build a house, it’s easy to be consumed by the details, like whether to go with brick over siding or paint the trim brown or green. And yes, these elements are an important part of making your house a home, but the foundation is even more important – because unless it’s solid, you're putting the entire structure at risk.
Creating a strong financial plan is a lot like building a house. It too needs a solid foundation.
In the world of personal finance, a foundation has three key components, insurance protection, savings, and investments. Most people are more familiar with savings and investments than insurance protection, but disability and life Insurance can play a very important role in helping to maintain your and your family’s standard of living if the unexpected happens.

“We’re so used to purchasing insurance to help protect things like our homes and our cars. However, we often don’t think to protect our income in the same way – and we need to,” said Dana Paliwodzinski, a Senior Risk Advisor with the AICPA Member Insurance Programs. “When I talk to CPAs at conferences and events, I always remind them that their income – and the potential for future income – is their greatest asset while they’re working. They need to think seriously about what could happen if that asset disappeared, even for just a few months, and put a plan in place to help address the potential risk.”


Disability Insurance

According to the Council for Disability Awareness, mental health, cancer and arthritis rank among the most common reasons people go on disability. These health issues can happen to anyone and can prevent you from working, even from home. While you might think you can dip into your savings to cover your living expenses, you ultimately have to consider how much of your savings you can sacrifice based on the situation. After all, a serious injury or illness may last months or years.
Disability insurance helps protect your paycheck – and often your savings – if you can’t earn an income due to an injury or illness the disability policy can support you and your family by paying out regular benefits to help you cover rent/mortgage, groceries, childcare cost and more. This coverage provides benefits if you are disabled and unable to work in your current occupation – not just any occupation. And some policies also offer a partial disability option, which can provide benefits if you’re able to continue working in your current occupation but have limited capacity.


Life Insurance

A recent study by the Life Insurance Marketing and Research Association (LIMRA) revealed that 42% of people would face financial hardship within six months of the unexpected death of a wage earner, and 25% would struggle financially within just one month. These statistics underscore the importance of having a plan to provide for your family after a wage earner dies. Life insurance can serve as a cornerstone of that plan.
A life insurance policy is a contract with an insurance company. In exchange for premium payments you make, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries after you die. For example, if your plan’s coverage amount is for $500,000, the people you've named as beneficiaries will receive $500,000, which can be used on anything from day-to-day expenses like groceries to major investments like the mortgage, college tuition for your kids and saving for retirement. 


The Next Steps

Many employers offer life and disability insurance as part of a benefits package, which can provide you with a baseline of protection while you’re with the organization, but often not the full income you and your family may need to meet financial responsibilities. For example, a life insurance policy through an employer might provide your family with a benefit equal to one year of your salary in the event of your death. And a disability plan might only pay a percent of your salary if you become ill or injured. Understanding how your employer benefits work can help you determine how much supplemental coverage you might need to help ensure you and your family can meet financial obligations if you lose income.
So many things can factor into your disability and life insurance needs – from the number of dependents in your household to how much you have in your liquid savings. As you shape your plan, these online tools can help you assess your current needs:



Establishing a strong financial foundation early on can help you prevent cracks down the road if the unexpected happens. Just remember, as with everything in life, your financial needs and responsibilities will change – especially as you reach different life milestones – so giving that foundation regular inspections and performing “maintenance” can help ensure it stands the test of time.

This article is provided for general informational purposes only and is not intended to provide individualized advice.

About the Author

Mark Thomas is a senior vice president with Aon Affinity, the consumer, association and group program business of Aon plc. He specializes in leading the operation, strategic alignment and growth of the industry leading American Institute of Certified Public Accountants’ (AICPA) Insurance Trusts.



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