Could you end up like Ed McMahon?
Ed McMahon is facing foreclosure of his home because he fell and broke his neck more than a year ago and has been unable to work.
OK, how many of you small business owners, independent contractors and sole proprietors out there would end up in the same situation if you were unable to work for 18 months?
You would think Johnny Carson’s sidekick would have enough money saved to weather such an economic storm, but he apparently doesn’t.
This could be any of us toiling away out there without a large corporation behind us providing a paycheck or disability while we recuperate.
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| Ed McMahon |
An accident or illness can be devastating to your financial health. According to an article in Health Affairs titled “Illness and Injury as Contributors to Bankruptcy”, about 350,000 individuals file personal bankruptcy every year because of an illness and injury.
Many of us live paycheck to paycheck and only few of us can bankroll an episode of short-term disability, which is typically three months.
“A disability during your working years can leave you deprived of income and the ability to make major payments,” states Kathleen Connell, a professor at Haas Graduate Business School, University of California, Berkeley, in an article in the Christian Science Monitor.
“Without disability support,” she writes, “a vicious cycle of financial reversals quickly occur. Except for those with a large amount of savings, people who suddenly become disabled are often unable to pay their mortgage, healthcare premiums, credit-card bills, auto loans, utilities, and any pension or college-savings contributions.”
So, this may be a good time to start thinking of what you’ll do just in case.
Here are some of Connell’s suggestions:
* Own health insurance. This is the foundational block of any personal-finance plan, providing coverage needed for all healthcare.
* Obtain disability insurance. This should rank with life insurance as a secondary financial priority.
* Be rigorous in reviewing potential long-term disability policies. Such contracts have numerous options; so carefully check occupation, income, recovery, and cost-of-living clauses. Access disabilitybenefits101.org for an independent discussion of disability benefits.
* Choose a long-term rather than short-term policy if your budget is limited. Long-term disabilities can create more expensive financial hardships.
* Review the financial strength of the insurance company before signing a short- or long-term policy. Check their ratings at ambest.com.
Most financial experts also suggest have enough money saved to cover your expenses for at least six months, and for small business owners you’ll need to figure out who’ll run your business when you can’t.
I know, it’s the last thing you want to be thinking about right now. But what are you going to do? Hope you win the lottery or something. Unfortunately, McMahon wasn’t able to keep cashing in on his gig with American Family Publishers sweepstakes.
What plan do you have in place?
