There are several ways to be prepared financially for an injury — even if it doesn't happen. The truth is, there is no way to predict when an injury or an illness will occur. And depending on the severity of the injury, you may be out of work for several weeks or months. This can greatly impact your finances. With careful preparation, you can keep your finances on track. Here are seven of the best ways to be prepared financially for an injury.
1. Ask Your Employer about Disability Insurance
Getting disability insurance is one of the best ways to be prepared financially for an injury or illness. Without this coverage, you might have to dip into your savings account to pay living expenses if unable to work. Disability insurance is relative inexpensive. And even if your employer doesn't offer coverage, you can purchase coverage on the individual market. Speak with an insurance agent for details.
2. Increase Your Savings Account
Unfortunately, disability insurance will only be about a third of your regular salary therefore, you’ll need a savings account to make up the difference, unless your partner works. For this matter, aim for a savings account with at least 3 to 6 months of income. If you can save more, go for it. Cash in the bank helps alleviate some of your financial worries and keeps your finances in good condition.
3. Pay off Debt
To financially prepare for an injury or illness, develop a plan to pay off your consumer debts, such as your credit cards, auto loans and other loans. The less debt you have, the better off you'll be. In addition, paying off creditors helps increase your credit score.
4. Get Payment Protection Insurance
This optional insurance is a godsend if you're unable to work after an illness or injury. Offered by mortgage lenders and banks that issue credit cards, payment protection insurance will pay your minimum payments for a period of about 12 months to 24 months, depending on your creditor. This keeps your accounts in good standing when you're unable to work.
5. Reevaluate Your Health Coverage
Adequate health coverage is another must when financially preparing for an injury. If you do not have adequate coverage, you might have to pay your medical expenses out of pocket. Check your policy to see what it covers, and if necessary, increase your coverage. This might result in a higher deductible and monthly premium, but you'll save in the long run.
6. Maintain a Second Income Source
If possible, look for ways to earn passive income. Not only will this provide extra income to beef up your savings account, it can provide your family with regular income as you recover from an illness or injury.
7. Keep Your Life Simple
This is one of the hardest pieces of advice to follow, but keeping your life simple can keep your family financially afloat after a financial crisis. This essentially involves living below your means — cheaper house payment, car payments and few debts.
Unfortunately, no one is invincible to an illness or injury. And given the severity of an injury or illness, you might be unable to work and have to cover living expenses for several months. But if you prepare in advance, you can get through the crisis with ease.
Are you prepared to handle a financial crisis?