You wouldn’t drive without car insurance, or live in a house without home and contents insurance, yet over 95 per cent of families do not have adequate insurance.1
We take some of the best things in life for granted. The ability to earn an income can be one of them. It’s just work, right? But it’s probably your most valuable asset. So how would you feel if your number came up and it was lost or taken away?
Broadly speaking, insurance can provide the following:
- Life cover – provides cash in the form of a lump sum to your loved ones if you die and can no longer provide for them financially.
- Total & Permanent Disability – provides you with a lump sum cash payment if you are permanently incapacitated to help with care and meet future financial obligations.
- Trauma – provide you with a lump sum cash payment if you are diagnosed with certain prescribed illnesses or injuries to help with medical costs and other financial burdens while you recover.
- Income Protection – provides you with a monthly cash payment to replace a portion of your income should you be unable to work due to sickness or injury.
The appropriate cover depends your circumstances such as being the primary income earner, debts, current and future obligations such as school fees etc. The idea is to match the cover to your needs:
- New homeowners – should consider cover to pay of debts and / or take care of repayments.
- Young family – factor in the cost of childcare then school fee as well as general household expenses.
- Mature family – a financial plan for when the kids are in high school and uni, as well as investments.
- Empty nesters – may have accumulated enough assets to require less but need to think about security in retirement.
You also need to find a balance between the cost and the risks you want to protect against. The cost of premiums will depend on various factors such as your age, gender, occupation and gender, as well as your general health and lifestyle.
This video about Scottie’s Story was sent to me by an insurer (TAL). While Wealth Simplicity is not aligned with any product providers, this real life situation highlights the value of life insurances and conveys how I have seen the stresses of an awful situation made easier with the removal of financial burdens. Scottie’s story is sobering and things worked out for his family, but the chances of this happening to any family are disturbingly high. Consider the following statistics around the likelihood of your number coming up:
- 2.6 million Australians aged under 65 are living with a physical disability.2
- Australians have a one in three chance of being diagnosed with cancer before age 75.3
- 690,000 Australians were injured at work during 2005 – 2006, with 43% not receiving any financial assistance.4
- More than 60% of Australians will be disabled for more than one month during their working life.5
- More than 25% of Australians will be disabled for more than 25% three months during their working life.6
- Like Scottie, one in twelve Australians will develop bowel cancer before the age of 85.7
With the right cover and not your standard default option in super, you can ensure you and your family are financially stable should you become incapacitated from work, right up to age 65. Recent developments also allow you to use your superannuation to pay insurance premiums and save your cash flow – more on this in Part II.
The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.
1. The Lifewise / NATSEM Underinsurance Report – February, 2010 2. AIHW (2008) Australia’s health 2008, Cat. no. AUS 99, Canberra. 3. AIHW (2008) Cancer in Australia: an overview 2008, Cancer series no. 46, Cat. no. CAN 42, Canberra. 4. ABS (2007) Australian Social Trends 2007, Cat. no. 4102.0, Canberra. 5. Fabrizio, E (2007) Australia & NZ Disability Income Experience www.actuaries.org/IAAHS/Colloquia/Cape_Town/Walker_-_Income_protection. pdf. 6. AIHW (2008) Cancer in Australia: an overview 2008, Cancer series no. 46, Cat. no. CAN 42, Canberra. 7. Bowel Cancer Facts – Bowel Cancer Australia www.bowelcanceraustralia.org/bca/index.php?option=com_content&view=article&id=163&Itemid=289 viewed 8 May 2012