Life is full of twists and unexpected turns. These twists and turns can unexpectedly result in difficult life changes, such as a personal injury or illness resulting in disability, a job loss, filing for a personal bankruptcy, or the death of a loved one. Managing any one of these or similar life events can be extremely stressful. Weaving through the twists and unexpected turns life presents can be very challenging. However, the more you prepare, the easier it may be to ride smoothly through life’s sharp turns. One way to ease the burden these life events may cause is by being financially prepared and having the necessary paperwork in order before the occurrence of such an event. We have compiled information that may help you be prepared in case one of these unexpected life events happens to you.
Without notice your life can be changed due to an accident, injury, or illness. These kinds of unexpected life events are relatively common occurrences that can happen to anyone—at any time. If you do not have a financial plan in place to handle these unforeseen events, your financial security could be eroded. Here are some steps you can take to be more financially prepared should you experience an accident, injury or illness that results in disability.
Most financial advisors recommend that you have enough money set aside to cover at least three to six months of your monthly living expenses. The more money you save, the better off you will be if you experience an unexpected accident, injury or illness. These funds should be in a savings account or similar account that is easy to access. We recommend you treat depositing money into your emergency fund just like another bill, setting aside a little bit of money each month to eventually establish an adequate cushion. If you are not sure where you will get the extra money to start an emergency fund, consider analyzing your current spending habits to determine where you can cut back on unnecessary spending. Having an emergency fund may provide you peace of mind knowing that you will be better able to pay your expenses during a difficult time. Consider making an emergency fund a part of your personal budget.
While they are not required to do so, many employers offer sick leave that may be used to recover from illness or injury. In some cases, your employer may allow you to use sick leave to care for your spouse, parent, or child. The amount of time off you may be allowed to take depends in part on your employer’s sick leave policy and your length of employment. Additionally, depending on the size of your employer and your length of service, you may be entitled to unpaid leave under applicable state and federal law. Check with your employer to determine if the company offers sick leave and know the eligibility requirements.
Short- and Long-Term Disability Insurance
Disability insurance replaces a portion of your income if you become disabled or are no longer able to work. There are two basic forms of disability insurance: short-term, which typically provides coverage for three to six months; and long-term, which typically provides coverage from two years to a lifetime. Most employer sponsored benefit plans include some type of disability insurance coverage. Check with your employer to find out if coverage is offered, and if so, what type. If your employer does not offer disability insurance or if you are self-employed, you might want to consider purchasing an individual disability policy.
Generally, employer sponsored disability insurance covers about 60% of your income; whereas, individual policies may cover up to 70% or 80% of your income. In either case, you will need an emergency fund to make up the difference, as no disability insurance policy will replace your entire lost income.
Disability insurance policies and plans vary in terms of their features. We recommend that you consult with a qualified insurance agent to help you determine your needs and to recommend a plan that will best meet them. Here is a brief description of some disability plan features for your consideration:
- Some policies may have a non-cancelable and/or guarantee renewable protection. With non-cancelable protection, the insurance company cannot cancel your policy or increase your rate unless you do not pay your premiums on time. Under guaranteed renewable protection, your policy cannot be canceled, but your rate can be increased as long as the change affects an entire class of policyholders.
- Most polices have an elimination period (or waiting period). This is the length of time you will have to wait after you are disabled before you start receiving benefit payments. The elimination period varies depending on the terms of your individual or employer’s plan. Generally, the elimination period ranges from 30 days to 365 days. The longer the elimination period, the lower your premiums may be. When choosing an individual policy, determine how long you can pay your expenses without receiving a paycheck. If you have enough money saved in your emergency fund account to cover three to six months worth of your expenses, consider choosing a longer waiting period.
- Make sure you understand how the insurance company defines disability. Some policies may only pay benefit payments if you are unable to perform the duties of any occupation (or job) that you are qualified to do as a result of your training, experience, or education. While other policies may only pay benefits if you are unable to perform the major duties of your own occupation.
Social Security Disability Insurance (SSDI)
SSDI is financed with the social security taxes workers pay. The program provides benefits that are based in part upon your salary and the number of years you have paid social security taxes. The amount you may receive replaces a limited portion of your income. Benefit payments will only be paid after you have been disabled continuously for five full calendar months. If approved, your benefits may begin on the sixth month after the date your disability began. If you have an emergency fund, you can use those funds to pay your expenses until your benefit payments begin, as well as to supplement the income not covered by SSDI.
By law, you may not be considered disabled unless you meet the following criteria:
- You must be unable to do any substantial work because of your medical condition(s); and
- Your medical condition(s) must have lasted, or be expected to last, at least 1 year, or be expected to result in your death.
The social security administration recommends that you apply for benefits as soon as you become disabled. It can take three to five months to be approved. For more information on SSDI benefits, visit the Social Security Administration website.
Losing your job may be one of the most frustrating financial hurdles you may experience. As soon as you receive a notice, you will most likely think about how you are going to pay your rent or mortgage, support your family and/or yourself, and what you should do about medical insurance. These are just a few of the questions and challenges that you may face with a job loss. If you have three to six months of your living expenses saved in an emergency fund, this should help relieve some of your financial stress, so that you can focus your energy on looking for a new job.
Additionally, if you are leaving your employer on good terms, you can request letters of recommendation from your supervisor and/or manager. While they have the right to decline giving a recommendation, don’t be afraid to ask. Additionally, if your employer consents, you may be able to take with you copies or samples of any non-confidential work or major projects that you worked on. Be sure to get any necessary consent from your employer before taking and using any work product. You might want to consider creating a work portfolio while you are gainfully employed. While losing a job is a stressful situation, there are a few things you should consider if you find yourself unexpectedly unemployed:
Unemployment Insurance Benefits
In general, the Federal-State Unemployment Insurance Program provides unemployment benefits to eligible workers who are unemployed through no fault of their own (as determined under State law), and meet other eligibility requirements of State law.
Unemployment insurance payments are intended to provide temporary financial assistance to unemployed workers who meet the requirements of State law. Each State administers its own unemployment insurance program within the guidelines established by Federal law. Eligibility for unemployment insurance is determined by the State law under which unemployment insurance claims are established. You must contact your state unemployment insurance agency to file a claim. Some state agencies allow you to file claims via the telephone and/or the Internet. Visit the Service Locator web site to locate your local office.
Finding the job you want in your field could potentially take longer than you expect. A temporary job may or may not be your first career choice, but it may enable you to earn an income while you are looking for your desired job. You might even be able to try out a new job in an industry or career field that you had not considered. Additionally, a temporary job could also potentially turn into a regular full time job, as some employers that work with temporary agencies often times consider temporary employees for full time jobs when they have open positions. A temporary position may just be what gets your foot in the door to a company you’ve been thinking about working for. Some temporary agencies offer benefits such as health insurance, vacation, holiday pay, 401(k), and other similar benefits. The money you earn from a temporary job may bring in part or all of the income you need to pay your monthly expenses. So, if you are in need of a job, why not investigate this opportunity?
Tips for Looking for a New Job
Looking for a job can itself be like having a full time job. Start by updating your resume and cover letter. As a rule of thumb, it is always a good idea to keep your resume current while you are employed. It is much easier to remember your job responsibilities while you are performing them rather than after you have been released from employment. Having a template cover letter and a current resume will make the job hunt easier by allowing you to tailor them to any job. Every company has its own specific job requirements (resume, cover letter, application etc.) and some may request letters of recommendations, certificates, writing samples, and/or references. Read the job description and requirements carefully so that you can customize your qualifications to the specific requirements of the job. Taking the time to make your cover letter specific to the open position is always better than using a generic letter for any open job.
Networking is a very important job search tool. Often times it is not what you know but who you know that lands you a job. Let your family, friends, church members, and past employers and co-workers know that you are looking for a job. Consider attending your local Better Business Bureau meetings, conferences in your line of work, and community meetings to get to know people. Sometimes a small connection could lead to a big job. And, don’t forget the social networking sites like LinkedIn, Facebook, Plaxo, or Myspace.
Consider using sources like headhunters, job placement firms, and websites like Indeed.com or Careerbuilder. Investing in a professional resume review services or the services of a professional career counselor can also help set you apart from the crowd.
If you are overwhelmed with substantial debt and are unable to get it under control, you may be considering filing for a personal bankruptcy to help you regain control of your life. Bankruptcy laws were first signed into law to give honest debtors a fresh start from burdensome debts. In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was signed into law. This new law created a new system that increases the proof necessary to qualify for filing for bankruptcy. With few exceptions, people who plan to file for bankruptcy protection must:
- Receive credit counseling from a government-approved organization within six months before they file for bankruptcy, and
- Complete a debtor education course before their debts can be discharged.
Not all debt is covered by bankruptcy such as student loans, taxes, alimony, child support, and fines. A bankruptcy may stay on your credit report for as long as 10 years. As a result, we recommend that you investigate all of your options before filing for a bankruptcy. If you decide that filing for a bankruptcy is best for you, consult with a bankruptcy attorney and make sure that you understand your options and the entire process. There are six basic bankruptcy chapters. However, people who file a personal bankruptcy typically either file a chapter 7 or chapter 13.
Chapter 7 is a liquidation proceeding. In general, you will be required to report all of your debt and your assets to a bankruptcy trustee. The Chapter 7 trustee will then determine whether it is in the best interests of the bankruptcy estate to sell any of your non-exempt assets and distribute the funds from the sale to your creditors. Generally, you are allowed to keep your exempt property. Exemptions are governed by state statue; as a result, it is best to consult with a bankruptcy attorney to best protect your assets.
Chapter 13 enables those with a regular income to develop a plan to repay all or part of their debts. It requires you, as the debtor, to submit a payment “plan” to the bankruptcy court to make installment payments to the Chapter 13 trustee who will then distribute payments to your creditors. The payment plan is based on your disposable income and your ability to pay creditors over a three to five year period. You then pay debts based upon the court-approved plan. Generally, if you comply with the terms of the payment plan, your debt may be discharged upon the expiration of the bankruptcy payment plan period. Chapter 13 may have some advantages over chapter 7, most significantly of which is the potential of saving your home from foreclosure.
For any bankruptcy questions, we strongly advise that you consult a bankruptcy attorney and/or a financial expert. For more information about these and other bankruptcy chapters, visit the U.S. Courts website.
Losing a loved one is considered one of the most painful life experiences, especially if the loss was sudden or unexpected. Having important papers in order and a plan in place will help you immensely should you be faced with this heartbreaking and emotional aspect of life. Here are five ways that may help you or your loved ones be prepared for a loss:
- Collect and store one set of the following documents in a safe location in your home and another set in a secure location outside of your home such as a safe deposit box. Make sure that someone you trust knows where these documents are stored:
- Marriage Certificate: If you do not have your certificate, you can get a copy from the county courthouse where you were married.
- Military Discharge Paperwork: If your spouse was in the military, you will need your spouse’s DD Form 214 and/or discharge certificate to collect survivor benefits.To request copies of these documents, visit the National Personnel Center website.
- Birth Certificate(s): Have these available for any dependent children.
- Will and/or Trust. It is recommended that you prepare one now if you have not already done so.
- Talk with your spouse or partner about what benefits each of you may be eligible for. If you are unmarried and have dependent children, it is also important for you to determine what benefits your children may be entitled to. We suggest that you place copies of your benefits documents and contact information in a file. Because each person’s situation is unique, it is not possible to provide a complete list of benefits to which you may be entitled. Here are some suggestions to get you started. We encourage you to identify and review any other benefits for which you may be eligible.
- Review your life insurance policy to determine how much will be paid out and to whom. It is also important to understand how the benefits will be paid to the beneficiary. Typically, the named beneficiary will either receive a lump sum or fixed payments directly from the life insurance company. The payment process may take several weeks to begin. As a result, you may need to have a contingency plan in place to pay for expenses.
- Remember, the purpose of life insurance is to provide financial support for the dependents or loved ones of the person who passed away. At a minimum, we suggest that a person has enough insurance to pay for their burial. The average funeral cost is about $7,000. It may be less if you choose cremation over a traditional burial. Take some time to analyze your financial situation to determine how much insurance you or your spouse may need, and then talk with your insurance agent if you feel you need to make adjustments.
- Review your annual social security statement so that you will know what benefits you and your dependents may be eligible for. Approximately three months before your birthday, you can expect to receive a statement from the Social Security Administration. This statement is a record of your earnings and potential benefits for you and survivor benefits for your spouse and your children. Your spouse or minor child may be eligible for a $255 death benefit payment to assist with funeral costs. You should also review the statement to make sure that the information is correct. To request a statement or for more information about your social security benefits, visit the Social Security Administration website or call their toll-free number 1-800-772-1213.
- Know what veteran’s Benefits you and your dependents may be entitled to if you or your spouse were in the military. You may be eligible for benefits such as pension, educational assistance, medical, and burial expenses. For more information about survivor benefits, visit the US Department of Veterans Affairs website or the Military.com website.
- Review your employer benefits package to determine what benefits your spouse or partner and dependent children may be eligible to receive. If you are married it is also important to understand your spouse’s benefit package. These include:
- The employer sponsored retirement plans, such as 401(k), 403(b), pensions, etc.
- Life insurance and disability policies.
- Vacation and sick pay.
- Health insurance plan. If you are covered under your spouse’s health insurance plan, make sure you determine when those benefits will end. You and your dependent children may be eligible for extended health care coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA) for up to 36 months. You will have to pay the total cost of the insurance premium. For more information, visit the U.S. Department of Labor website.
- Review your will. At a minimum, everyone should consider having a will. After you die, the provisions of your will determine who will inherit your property, who will become the guardian of your children, and who will wrap up your financial affairs. Depending on the value of your assets, you may want to consider a revocable living trust. In some cases, it will partially substitute for a will. For more information about wills, read the Estate Planning section on our Marriage webpage. We also encourage you to seek professional advice to help you with your estate planning needs.
- Make sure all of your federal and state income tax returns are in one central location. If your spouse or partner passes away, you will be required to file an estate tax return. The unlimited marital deduction may allow you to avoid the estate tax entirely if the surviving spouse is a citizen and receives all the assets through a will, trust, or some other legal means. We suggest that you contact your tax advisor for more information about handling tax matters or visit the IRS website.
- In the event of a death of a loved one, make sure that you get 10 to 15 copies of the death certificate. In most cases, you will need an original copy of it to claim benefits and to manage other financial obligations. Additionally, think of things unique to your situation that may need to be changed or updated due to the loss of your loved one. For example, if you have joint accounts with your loved one, the survivor should put those accounts in his or her name and update beneficiary information.
Planning ahead for financial challenges is the best way to survive them with greater ease. Overcoming financial challenges makes you a better manager of your assets and protector of your wealth. Start planning to protect your wealth today.
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