| April 10, 2015

Research of the Week: Are You Prepared for the Worst?

Unexpected life events can break even the strongest budget if you aren’t ready.

Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…

The interesting study

In March, Prudential Group Insurance touted a new tool for employers that “allows them to measure the financial wellness of their workers.” Why would your boss care about that? Because a financially secure employee is most likely less stressed out, healthier, and works harder – making them more productive for the same salary. However, employees can learn from the results of this new tool, called the “Prutection Score.”

The big result

During the survey of more than 5,300 full-time employees that Prudential used to establish the benchmarks for scoring, the data revealed that even with benefits the average worker could only provide 71 percent of “the financial needs for a spouse’s or partner’s lifetime and for children until adulthood.” The percentage was the same for covering monthly expenses “in the case of an illness or injury that resulted in the inability to work.”

The fascinating details

The tool is designed to measure a person’s ability to face three key risk factors:

Financial crisis ahead
  1. Premature death in the family
  2. Illness or injury resulting in an inability to work
  3. Critical illness or accident leading to out-of-pocket medical expenses.

As mentioned above, the benchmark score for the first two risk factors was 71 – meaning a worker would be able to handle only 71% of the ongoing costs related to these two life events. The benchmark score for the third event was only 48 – meaning the average consumer can only cover 48% of the out-of-pocket expenses incurred from critical illness or an accident.

Prudential also broke the results up by key demographic categories. This data delivered some interesting results:

Married vs. Single

  • Single survey takers scored higher on being able to manage the costs of premature death – with a benchmark score of 78, whereas married couples only scored 67.
  • However, married couples scored higher for both Illness/Injury (83 married vs. 47 single) and Out-of-Pocket Expenses (54 married vs. 34 single)

Age

  • In general, the older the survey respondents, the more prepared they were to deal with all three risk factors – respondents age 60+ scored the highest over all three categories, followed by respondents age 50-59.
  • Oddly though, respondents under the age of 30 scored better than those between 30-39 in two categories:
  • Premature Death: 63 for those under 30 vs. 57 for those 30-39
  • Out-of-Pocket Expenses: 39 for those under 30 vs. 31 for those 30-39 (and age 40-49 also scored 31)

Income

  • For the most part, this factor is much as you’d expect – the more income respondents made, the better prepared they were to handle the costs associated with each risk – in fact, respondents who made over $150,000 per year had some of the highest scores recorded. For instance, these respondents scored a 99 on their ability to cover Out-of-Pocket medical expenses.
  • The only real oddity shown in these results was that respondents who made less than $50,000 per year were slightly more prepared to handle premature death (72 benchmark score) versus those making $50,000-$150,000 (benchmark score 69)

Number of children

  • Single respondents with no children scored the highest benchmark on their ability to manage costs for Premature Death (88), while single respondents with no children scored the lowest (61)
  • Married respondents with no children scored the highest for Illness/Injury (86) while single respondents with no children scored the lowest (45)
  • While no group score particularly high for Out-of-Pocket Expenses, married respondents with at least one child were the most prepared (56), while single respondents with no children scored the lowest (30). In fact, that benchmark score of 30 was the lowest score recorded for any one demographic group.

Or course, Prudential also factored in insurance. For example, those respondents who received disability coverage through their employers earned a benchmark score of 82 in their ability to cover costs associated with Illness/Injury, while those who didn’t get this coverage from their employer only scored a 56.

What you can do

Take time to assess your own ability to handle these three key life events to see how much of the cost burden you could handle before you’d face financial distress. Then take steps to offset those risks – particularly by taking advantage of insurance and coverage options through your employer.

“Often people focus on and are satisfied with their paycheck earnings for their employer. They neglect to take advantage of key benefit options their employer may offer that can help cover the costs of these unexpected life events,” says Gary Herman, President of Consolidated Credit. “While it may feel like a waste of money to take income out of your paychecks for things like health insurance, life insurance, and disability coverage, having protections like these in place can save you and see you through if the worst should happen.

If you aren’t sure about the options you’re using or the options available, reach out to your Human Resources department. Ask about:

  • Health insurance coverage (medical, dental, and vision)
  • Accidental death and disability coverage
  • Voluntary life insurance
  • Long-term and short-term disability
  • Accident protection
  • Critical illness coverage

Not all employers offer all of the options above, but you may be eligible for all or some of these options in order to offset the potential financial burden of these types of major life events. Of course, each option you take will decrease the amount of net (take-home) income you receive in each paycheck. If you’re struggling with debt, reducing income may cause problems for your budget.

We can help. Call Consolidated Credit today at to speak with a certified credit counselor at no charge. You can also reach out through our online application and a counselor will be in touch to discuss your options.

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