The Covid-19 pandemic taught us that an unexpected life event can happen suddenly and have unforeseen consequences. Under those circumstances, unexpected events can quickly derail your financial situation and push you into a debt trap. Therefore, being prepared is crucial to ensure your family and yourself are protected.

To illustrate, a Forbes survey revealed that the pandemic triggered nearly 40% of people who had emergency funds to access them. Additionally, 73.3% of people acknowledged that they used half or more of their emergency funds and 29% acknowledged that they used all of their emergency funds. Many people, however, have never had an emergency fund.

What Are Some Of The Risks? 

Most importantly, there are a number of risks that you should consider protecting yourself from. These risks are often are likely cause of consumers struggling with debt or with a high debt reliance:

  1. Divorce
  2. Medical emergencies
  3. Unemployment / retrenchment; 
  4. A sudden loss of life
  5. Inability to work due to injury, disability or dread disease

Each of these risks can bring about significant personal and financial challenges to an individual or a family. 

Do You Have Enough Money Saved? 

In the event, that the unexpected occurs, many rely on their savings/investments to get through the month, pay their bills and cover all their expenses. However, have you ever considered how much you have saved and if it will be enough? 

According to Investopedia, the savings rule of thumb is three to six months of savings. These savings should include covering all necessary expenses. However, this can vary depending on your income level and preferences. Generally, if an unexpected event occurs, you should cut all unnecessary expenses as soon as possible. 

Do You Have The Adequate Policies In Place? 

Particularly, having certain policies in place such as health insurance, income protector, life insurance and vehicle asset insurance is doubly important in ensuring that you and your family are protected. In the case of an illness, loss of income, death or accident bills can easily start stacking up and impact your financial wellbeing. Your risk policies are designed to protect you and your family in certain circumstances to ensure that you are always in a safe financial position. 

What Happens To Your Debt If An Unexpected Occurs?

This varies on a number of factors. If you suddenly become unemployed, it is crucial that you advise your credit providers of the change in your circumstances. This will allow yourself and the credit providers to come to an agreement. Subsequently, in the case of severe illness, if you have an income protector, it will provide you with enough funds to cover your monthly repayments and expenses until you are able to continue working again. In the event of death, your debt will be settled by your estate, that is if your estate has cash, savings, investments or other assets that outweigh the money owed.

Is Your Debt Insured Against Risks? 

Insuring your debt can protect you in the unexpected. Insurance policies on unsecured debt is called credit life insurance. These policies usually pay out on retrenchment, disability and dread disease. Choosing the right insurance for your debt is crucial. Your insurance policy on your debt can continue providing the necessary funds if you are retrenched or become severely ill. Having this insurance ensures that credit providers are not able to obtain a judgement against you or sell your debt to debt collectors. 

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