Creating Opportunities in a Challenging Economy: Protecting yourself in challenging times

Jacqueline Sharp, vice-president and general manager, Scotia Jamaica Life Insurance Company. – Contributed

Financial analysts have been advising consumers and businesses, indeed whole economies, to cut unnecessary expenses as a means of surviving the economic fallout.

Those in the know caution against frivolous spending and encourage instead a leaner budget and an attempt at remaining fairly liquid. Consumer trends show that for the most part people are heeding that advice, cutting spending on things like food, fuel, entertainment and even contributions to churches and other charitable organisations. Analysts say people have also begun to reduce how much they spend on insurance.

Bad idea

However, according to Jacqueline Sharp, Scotiabank vice-president and general manager of Scotia Jamaica Life Insurance Company, reducing insurance coverage at this time is a bad idea.

“If you’re not continuing to earn a steady income, if you’ve been laid off, if anything were to happen that you did not anticipate, and you’ve cut your insurance coverage, you would not have that cushion to take you through that difficult time. Protection is important, but even more so during these challenging times,” she explains.

Many families have faced financial ruin brought on by extended periods of illness, death or even an accident. Sharp argues that insurance can mean a world of difference and points to the newly launched Scotia CritiCare product as an excellent tool for just that kind of protection.

“CritiCare is a policy that will pay you a lump sum once you’ve been diagnosed with any one of nine critical illnesses we cover,” she says. In addition to the more common ones like cancer, stroke and heart attack, CritiCare covers paralysis and burns, among others.

“A lump-sum payment at a time when you’re going through emotional and physical distress means you won’t have to worry about paying for expensive medical treatment and high medical bills,” she argues. “These days, the incidence of these types of illnesses is increasing. Most people have a family member, a friend, a neighbour or a co-worker who has been afflicted with one major illness or another and even younger people are being affected. So it’s very important to have that assurance that if anything were to happen, you would have that added income to help with the bills.”

More important to plan for future

Sharp asserts that as the economy tightens, it becomes more important for people to manage their funds well and engage in more effective financial planning. She points to instruments at Scotia Jamaica Life Insurance that she and her team have designed to help customers plan for the future.

“ScotiaMint is a great vehicle for medium- to long-term savings goals like buying a house or sending the children to school abroad. It combines savings with a little bit of insurance and affords ScotiaMint customers some amount of tax advantages,” she says.

As it relates to planning for the retirement years, Scotia Jamaica Life Insurance this year launched ScotiaBridge – an individual retirement account or IRA. It is a popular savings instrument in the Unites States, which has only been recently introduced to the Jamaican market.

“ScotiaBridge is one product I would encourage anybody who is working and earning an income to acquire. You’ll be able to maximise your retirement contributions because you get tax-deductible contributions going into the plan and there is tax-free earnings growth throughout the accumulation years. So what all of that adds up to is greater value, a greater nest egg at retirement,” Sharp explains.

The Scotia executive contends that although IRAs are a relatively new concept in Jamaica, they are beginning to take off.

“An instrument like ScotiaBridge is going to allow self-employed persons, or someone who works with a company that doesn’t offer a pension plan, to have the benefit of an approved pension product,” she declares.

Sharp offers the following example of how ScotiaBridge could workfor Sean, a 40-year-old man who has begun to save towards retirement:

Sean’s age: 40

Retirement age: 65

Years of saving: 25

Regular monthly contributions: $3,000

Tax savings per month: $750

Growth rate: 14.0 per cent

Total at retirement: $2,021,870

This $750 is the 25 per cent tax-free portion of the $3,000 deduction that would now be going into a pension plan which allows for tax-deductible contributions (no taxes paid on pension plan contributions).

Stacy-Ann Smith, Gleaner Writer