If you have never tried a parachute jump, I’d strongly recommend it. The worst bit is just before you jump. Everyone is different, but when I had my experience, I think I was more afraid of bottling out than actually jumping. When I finally jumped, the first 12 seconds were the most exhilarating I’ve experienced. You’re freefalling to earth at 120 miles an hour and asking yourself – “What if my parachute fails?” And then, with an alarming ripping sound, your parachute opens, and you’re floating down to earth serenely for nearly five minutes, desperate for the experience never to end. Wonderful and unforgettable!
What’s the risk? Now imagine this: You’re about to embark on your parachute jump and the instructor advises you that you would normally have a single parachute in your backpack. However, for an additional 10%, you could have a “survival kit” essentially, a second emergency parachute in your pack, which would act as back up should the main one fail; thereby protecting yourself from certain disaster. What would you do? Would you pay the extra?
The “survival kit” concept works similarly when you come back down to earth. If, as your financial adviser, I asked you to take 10% of your income to pay for your financial survival kit (nothing to do with parachuting), what would you want in your kit? In other words, what’s at risk?
Your income? How important is your income? If it were to suddenly stop without warning, would you be able to manage? If the answer is no, then you need a survival kit for your income. Your income could stop suddenly through losing your job – through redundancy or being fired. Here, your survival kit would comprise of having a buffer of three month’s income to help you cover your expenses whilst looking for another job.
If you were unable to work due to an illness or accident keeping you from working for a prolonged period, you would need an income protection insurance policy. This would pay you an income until you were able to return to work. These policies are usually good value, especially if you are young and healthy.
Your life? What financial impact would your death have on the people closest to you? Would they be able to manage without you, or are you financially responsible for them? If you are, then you’ll need to include a life insurance policy in your financial survival kit. This would pay out a lump sum or an income for a specific term to your loved ones on your death to help them survive without you. You could write the policy under trust to ensure that it’s tax efficient when it pays out.
Your health? What about your health? Where does that fit into financial survival? Most homebuyers purchase life insurance when they arrange a mortgage, but only a minority will take up another form of financial protection that is five times more likely to pay out. Critical illness cover pays a tax-free lump sum on diagnosis of any one of a list of serious (critical) illnesses, including cancer and heart attacks. Claims statistics suggest that you are five times more likely to suffer from one of these than you are to die before you reach the age of 65. Because of this, critical illness cover is much more expensive than life insurance. If however, you want your financial survival kit to be comprehensive, it’s a must have.
You would probably pay the additional 10% surcharge for the extra parachute. The same principle applies back down to earth. Make sure that you so have a financial survival kit and that within it, you have all those components which are most important to you.
Akwasi Duodu, Sterling & Law Independent Financial Consultants