Let’s take the scenario of Joe
having an accident at age 26 which means he is unable to work for a year. As we can see from the top chart in Figure
One (taken from the Cashflow Planning Tool), As well as having to raid his
savings in order to meet his living expenses (effectively wiping out the
deposit for his house), Joe would still be left with a shortfall, which he
would have to fund out of other savings or by borrowing money.
Not only would this cause him
short-term financial pain, but it would have a knock-on effect for some years,
compromising his ability to get on the property ladder, and potentially even
his ability to make adequate pension contributions for a few years (something
which at this early stage in life would have a disproportionate effect due to
compounding).
The bottom chart shows graphically
how income protection against ill health immediately plugs that gap, enabling
Joe to concentrate on his recovery without worrying about short-term financial
issues, as well as protecting that longer-term goal of buying his own property, and a comfortable retirement.
Of course, so far, Joe’s planning
has been for just himself, but the situation completely changes when marriage
and starting a family come into the equation.
In the next part, we meet Joe’s wife Jessie and his son Johnnie, and see
how their arrival in his life affect his plans.
Read the next part in the series here.
