Recession proof your lifestyle

The ill winds of a recession are looming. With Christmas not far away and people looking forward to spending a little money to keep the Christmas cheer alive, it's also in the back of every Australian's mind, 2009 is going to be financially difficult for everyone.

People are going to tighten their belts financially and this means cutting back on those costs we don't see as necessary. What we need to do is make sure we consider the fundamental needs of our lives and make sure these are the last areas we look to cut back. It's unfortunate when people see their insurance as one avenue to reduce costs without having their lifestyle affected. Unfortunately the implications of needing to make an insurance claim without having insurance and being stuck in the middle of a recession with little or no financial means is going to be traumatic and have you starting down the slippery slope to poverty.

During a recession unemployment goes up, the worth of individuals goes down and the competition to find employment increases. Employers are less likely to offer gracious terms to their employees who are sick. So time off work or reduced duties to allow a full recovery and keeping your job do not go hand in hand. In prosperous times things were different and employees may have been able to demand the good graces of their employers, during a recession one would more likely find themselves out of a job during the same situation of sickness or injury.

The position for self-employed people is even worse, during economic growth, opportunities abound for the self-employed when they may even have found they were able to pick and choose where they engaged in a business, during a recession, opportunity has disappeared and may even see a self-employed discounting their own worth to win business. Self employed people facing sickness or injury will mean the end of stability in one's lifestyle. It is this reason that during a recession it is important to, if anything, increase ones insurance protection as a means to guarantee your lifestyle.

One way to recession proof your lifestyle is to consider insurance as a guarantee against unexpected loss. The positive situation with insurance is - the premium is far less than the payout and so the taking control of your future is about insuring today. Even the government is on our side offering deductibility of income protection insurance against our normal income. The opportunity also exists to pay for our insurances with our superannuation money. Using our superannuation money means that our personal cash flow is not affected and so we can recession proof our lifestyle and make up for the costs of this during more prosperous times should we desire.

Let's look at an example:

David and Jane run a successful plumbing business, David is a fully qualified plumber and Jane has done a bookkeeping course to run the financial side of the business. David earns $85,000 a year after all his business expenses are taken out. Working with Jane, they are able to look after their two children, pay their debts and lead a happy lifestyle. David is worried that the coming recession will have a turned down on the demand for his business and is looking to cut costs. David calls his insurance broker to find out when the premiums are due on his business and personal insurance and if there is an opportunity to reduce the cost by reducing some cover.

After assessing David's situation his broker is able to rebalance most of his insurance and also makes the suggestion to David in regards to taking out some personal insurance protection. David's initial reaction is to see this as an extra cost and rejected it on the spot. After some persistence from David's insurance broker, David listens to the full proposal with growing interest. David is able to take out an insurance policy against his income that not only protects most of its value but only costs a very small amount. This insurance turns out to be tax-deductible and so the true cost seems quite insignificant to the full protection of income to the family. Additional to this, David's insurance broker also assists in implementing a life insurance policy and a total and permanent disability policy through David's superannuation. The cost of the premium for this insurance is paid for by David superannuation fund, and over the coming recession period, David is going to have the full benefit of this cover without having to bear the immediate cost. David's broker suggests that additional funds be tipped into his superannuation fund when they are available, to help top up the investment money for his retirement.

David was so impressed with the foresight and care of his broker he asked what could be done for his wife. A similar scenario was proposed for Jane, Janes superannuation money was accessed to pay for both a life and disability protection.

After all the insurance had been put in place David looked at his finances and found that he was in the same financial position yet much better protected. David and Jane could now continue on during the tough times of recession with the full knowledge that if sickness or injury was to unexpectedly come knocking they were protected.

Almost everybody has a little of David or Jane in them. The basic concept that we work to earn money, which provides for our lifestyle, means, if we don't work, we will lose our lifestyle. Most people won't make the choice to stop work voluntarily it is the involuntary pressure of sickness or injury that will not only stop most people working but forced them into financial ruin. Seeking the assistance and advice of a suitably qualified and experienced Financial Planner who specialises in insurance can lead to a clear understanding of the options available to protect one's lifestyle through strategically designed insurance protection.

Insurance - if you don't have it, you can't claim (simple statement, but important). You may be better off owning insurance and "thinking" about cancelling it instead of the other way round.

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Published on November 11-th, 2008 in Insurance
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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