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job lossTis the season for financial stress. Not only do many people deal with the stress of the financial burden that holiday shopping can create, the stress is magnified tremendously if there is an unexpected job loss. Here are some great tips from ModestMoney.com on how to financially survive an unexpected job loss.


 

Sometimes, months of layoff rumors precede a job loss. You hear whispers of cutbacks and people not getting their raises. Other offices start to close, and you’re pressured to work harder and cut costs.

At other times, a job loss happens with absolutely no warning. Your business closes, you get fired, or you become disabled and unable to work.

If you get fired or laid off, you might draw unemployment for a little while. Unfortunately, the bills won’t stop coming even when your money disappears. The last thing you want to do when the unexpected happens is to find yourself without a plan. Disaster-proof your finances now, before it’s too late.

DISABILITY INSURANCE

About 70 percent of people own life insurance policies, but only 40 percent invest in disability insurance. In reality, it’s probably more important to protect your current income before investing in life insurance. A 20-year-old today has a 30-percent chance of becoming disabled and missing at least six months of work before retirement. You might think you can fall back on government benefits for disability, but they vary widely depending on where you live. In the U.S., for example, people draw an average of just $1,188 for Social Security disability.

Disability insurance costs more than life insurance. The average private disability policy costs $18.60 per $1,000 of coverage versus 22 cents per $1,000 of coverage for life insurance. However, if you purchase disability insurance through your employer, you often get a cheaper policy. The average employer disability policy costs just $16.30 per $1,000.

Don’t worry about disability insurance if you make less than $30,000 per year or if you’re over 65. In these cases, you can get as much from public benefits as you will from your policy.

Also, if your injury results from an accident or workplace negligence, you can contact personal injury attorneys about getting a settlement. However, if you’re the family breadwinner, and you can’t live off of savings and investments if you can’t work, then you need disability insurance. Keep these tips in mind:

Pay your premium with after-tax money. When you pay disability insurance premiums with after-tax dollars, all disability benefits that you could receive become non-taxable. Even though your premiums would cost less if you paid for them with pre-tax income, you’d save a lot of money — if you actually became disabled — by making sure that you don’t owe taxes on the payouts you receive.

Expect only partial income replacement. Most disability payouts cover only 50 to 70 percent of your salary. Again, you can bridge the coverage gap by making sure that your payouts aren’t taxable. Pay your premiums with after-tax dollars.

Find ways to lower costs. You can pay lower premiums by accepting a lower percentage of your salary, such as 50 percent instead of 70 percent. Also, you can pay less by accepting a longer waiting period for payments to begin, such as accepting a 90-day waiting period instead of a 30-day waiting period.

SAVINGS

Traditionally, financial advisors have recommended having three to six months of income in your savings account. Unfortunately, the recession of 2007 changed a lot of the old rules. Today, 36.7 percent of people who don’t have jobs have been unemployed for more than six months. With such a tough job climate, boosting your savings rate becomes (continue reading IF YOU LOST YOUR JOB TOMORROW, WOULD YOU SURVIVE FINANCIALLY by ModestMoney.com)

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