Income Protection: How to Protect your Income in Uncertain Times

Last Updated – Aug 22, 2022 @ 7:54 am

One of the most overlooked aspects of our financial health is income protection. Our ability to earn determines our quality of life, any unexpected changes to our flow of income will drastically affect how we live on a day-to-day basis.

I like to think of income protection as a strategy that ensures the following:

Have extra money for monthly expenses when you don’t have income
Develop more skills to make yourself more competitive in the job market
A backup source of cash flow during unemployment

It’s about giving yourself more wiggle room for expenses in the unfortunate event (knock-on-wood) you lose your job or source of income.

That way, you’ll have money to pay for the essentials while you sort things out and look for another job or start a new business. This is especially crucial if you have a family or loved ones who depend on you.

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5 Ways to Protect your Income in the Philippines

Here are some of our tips for protecting your income:

1. Build an Emergency Fund

An emergency fund solves the immediate problem of accessible cash to spend if something unexpected happens.

We all know that paying for stuff that requires a significant amount of money (medical emergencies, tuition, overdue bills, home/car repair, etc.,) is extra “painful” when you don’t have a recurring income.

Having money in a savings account (and/or other highly liquid assets) as an emergency fund is important because it helps you pay for time-sensitive commitments without the need to borrow.

It gives you some peace of mind knowing that you can pay for such expenses should the need arise.

Here’s a quick-step guide to building your custom emergency fund:

Calculate your monthly expenses and multiply them by 3 or 6. These numbers represent the number of months your emergency fund will cover when you have no income.
Start allocating a portion of your income to your emergency fund.

You can check out our list of the best savings accounts in the Philippines if you want to open one up for your emergency fund.

2. Invest in Income Protection Insurance

These are insurance products that provide monetary benefits in the event you lose your job or temporarily lose the ability to earn an income.

Most major insurance companies offer them and vary depending on the price of premium, benefits, and included features.

The idea is simple: pay for premiums, the insurance company will pay benefits when you are not able to earn an income.

This will help you pay for your family’s daily living expenses, like utility bills, education, or existing loans.

You can also add riders (hospitalization, accident, critical condition, etc.,) if you wish to add more protection benefits.

For a list of the top insurance companies in the Philippines, you can check out our guide here.

3. Invest in building passive income

Imagine having an extra pair of hands doing work that will get you paid. That’s exactly the opportunity that passive income creates.

It allows you to make money without worrying about your day job, and it can be a great way to build wealth over time.

And the best part? It requires little or almost zero of your most precious resource: time!

Passive income streams can be generally classified into 3 types:

1. Investment – Putting money into a business or an investment vehicle that could potentially earn dividends or recurring revenue.

2. Rental – Earnings or payments you get from leasing a piece of property.

3. Online – Leveraging the power of the internet to participate in various money-making opportunities.

The goal here is to generate a sustainable income source that makes sense for you, from the type of passive income you choose to the amount of time and effort required to do it.

Here are a few passive income ideas from our guide:

Dividend-investing
Rental properties
Cryptocurrency Staking/NFTs
Selling digital products
Building and/or buying and selling websites
Fixed Income securities
Business franchising

4. Upskill & Reskill

Globally, 75 million jobs are predicted to be lost by 2022, according to the 2018 Future of Jobs Report from the World Economic Forum.¹

In parallel, 133 million new jobs will be created as a result of technological advances and digital transformation.

You need to keep yourself competitive in the ever-changing job market because you’ll never know how these upcoming changes may affect the company you work for, or perhaps bring unforeseen changes within the entire industry it falls under.

It’s inevitable that some jobs will get phased out. But at the same time, new ones will be created as new industries and markets are made.

The key is to look for ways to make yourself highly employable and antifragile to most changes. And to achieve that, you need to level-up your skill set or acquire new ones.

And that is through upskilling and reskilling.

Upskilling is about learning new things that will enhance your current skill set. Coders, for example, might want to learn a new programming language, one that’s currently getting more demand from the job market.

Reskilling is the process of acquiring skills that will lead you to a different occupation or career path. This is for people who want to make a jump into a different career, whether it’s somehow linked to their previous job or a different field.

This is important because a good income protection strategy should include ways and means to ensure a high-level of competitiveness in the job market.

That way, you can ensure that you’re highly employable regardless of current job market conditions.

Different ways to Upskill or Reskill:

Courses (here’s a list of 100 free online courses you can check out)
Internships
Training
Mastermind Groups
Workshops
Seminars
Reading books and other materials related to your chosen skill

5. Stay Healthy

Yes, staying healthy is crucial to protecting your income, although admittedly, it’s often overlooked.

In this era of “hustle culture”, where it’s actually a badge of pride to go 101% 24/7, 7 days a week — it’s especially crucial that we be more mindful and take care of ourselves so we don’t crash and burn physically and mentally.

Put simply, give it your best but don’t forget your health. All your best laid plans to earn more and protect your income won’t matter if you get sick.

Just remember the basics: have enough sleep, drink plenty of water, eat healthy, and exercise. Unwind and relax, let your body recharge.

That’s it, keep it simple, no need to get fancy. Your current and future self will thank you for it.

Recommended Reading: Personal Finance Fundamentals

What is Income Protection Insurance?

Income protection insurance is a safety net during unexpected events. When you’re unable to work and earn an income due to injury or illness, you can use it to pay bills and essentials while you recover.

It can help to cover your living expenses as you take time off work to receive medical care or until you can get back to work.

There also income protection insurance products that can provide a regular monthly income for your family when you pass away.

Best Income Protection Insurance in the Philippines

Below are some of the most popular income protection insurance products in the country:

1. AXA Philippines

AXA offers 3 solutions that provide income protection and help sustain your family’s living expenses:

Protection with investment growth
- MyLifeChoice Protect
- lifebasiX
Protection with guarantees
- FleXiProtect

2. SingLife

SingLife, in partnership with GCash, makes it easier to avail and claim their income protection plans.

Their product can assure monthly benefits to cover your family’s regular expenses for a number of years (instead of getting a one-time fixed amount).

3. Sun Life

Sun Life has 3 products that can help with your income continuation needs:

SUN Smarter Life Classic
SUN Safer Life
SUN StartUp

4. AIA Philippines

AIA’s Income Assure 7, which is an endowment product, provides guaranteed returns (annual cash payouts of 3.5% of your initial payment – or a total of 24.5% in 7 years). In case of death, your family receives 110% of your initial payment.

5 Quick Tips when considering Income Protection Insurance

Be honest about your current health status. If you are currently experiencing any medical conditions, such as diabetes, asthma, or heart problems, you should disclose these issues to your insurance company.
Choose a plan that best suits your needs. For example, if you need income protection while you recover from surgery, choose a policy that covers up to six months of income replacement benefits.
Read the fine print carefully. Make sure you understand what your policy covers and what it does not cover. Also, know how much money you will receive each month.
Update or renew your policy as needed. This means reviewing your policy every three years. It’s important to review your policy to make sure that it continues to meet your needs.
You can opt to terminate your policy within 30 days. If you decide to cancel your policy, you must give written notice to your insurer.

It’s always good to be prepared for the unexpected.

The truth is, even if you’re lucky enough to rarely experience any financial setbacks, life is unpredictable.

So it makes sense to protect yourself against the possibility of having to rely on your savings when you’re unable to work for a certain period. That’s where income protection comes in.

Income Protection Insurance FAQs

How does income protection insurance work?

You pay a premium and in return, you can receive regular payments (for a certain period) that replace a portion of your income when you become sick or get in an accident.

For employees, companies typically have different types of paid leaves depending on the situation. Unfortunately, most of these are for short durations only (days or weeks) and will not be enough if absence from work lasts for several months.

This usually results in the employee not having the main source of income for a certain period of time. And this can be difficult especially if they are the breadwinner or have a lot of non-discretionary expenses to cover (mortgage, utilities, bills, food, etc.,).

Income protection insurance can help ease the burden in this type of situation by providing a source of income. And while it’s only a portion (typically 50 percent or more) of your salary, it’s still a significant amount to help cover living expenses.

It’s worth noting that there’s usually a pre-agreed waiting period before you start paying premiums. It can be as long as a couple of months to a full year. In most cases, a longer waiting time equates to lower premium rates.

But I already have an Emergency Fund. Do I still need Income Protection insurance?

Having an emergency fund worth 3-6 months of your salary is a good thing and should be sufficient in most cases when you’ll only be out of work for a short period of time.

However, if the situation requires you to miss work for several months to a full year (maybe even more), then having an income protection policy can help.

A long-term loss of earnings could have a real financial impact on any family’s lifestyle, and it’s really in these situations when income protection insurance shines.

Especially in situations when you have to pay for medical expenses yourself. Having some form of earnings can go a long way with day-to-day expenses.

What Should I Look For When Buying Income Protection Insurance?

The two main things to consider are the level of coverage and duration.

Basic income protection covers salary and savings while more comprehensive plans might offer bigger monthly payouts to cover stuff such as a mortgage, loans, and similar types of expenses. The latter of course comes at the expense of a higher monthly premium.

Length of coverage is the other thing to consider, most plans last for several months while longer policies can cover up to a year or more.

It’s important that you consider your financial situation when choosing an income protection policy. For example, if you have some savings and an emergency fund, perhaps a cheaper and shorter coverage is the better choice.

Otherwise, a more comprehensive and longer policy might suit you best if you don’t have an emergency fund yet or some savings for unexpected situations.

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