Protecting your family

The holidays are traditionally a time to relax and reflect on the importance of family. They are also an opportune moment to think about how you can care for and protect your family all year round.

When you are enjoying the summer break with your loved ones, it can be hard to imagine anything could ever go wrong. But life is unpredictable, which is why life insurance is so important, particularly when you have people who depend on you.

Whether you are a young couple starting out, a growing family with kids at school and a mortgage, or empty nesters with debts to clear before retirement, having the right insurance cover could make a world of difference if the unthinkable happened.

Life insurance is not one product but many, to cover a range of needs. If you are unsure which cover is right for your family, begin by asking yourself a series of ‘what ifs’.

What if you get sick or injured and are unable to work?

You probably insure your car and your home, but the impact on your family is potentially much greater if you lose the ability to earn an income. Whether you are out of action for months or years, few families have enough savings to tide them over until you recover and return to work.

The solution is Income Protection insurance, also called Income Replacement or Salary Continuance cover. This replaces up to 75 per cent of your current income if you are unable to work due to illness or injury. Depending on the policy, it can cover you for short or long periods, sometimes up to age 65, after various waiting times.

What if you suffer a major illness?

The survival rates for critical illnesses such as heart attack, cancer and stroke are improving, but recovery can take a long time and the financial and emotional toll on your family can be high.

The solution is Trauma insurance, also called Critical Illness. This pays a lump sum if you are diagnosed or suffer one of a specific list of illnesses. You could use the money to reduce your working hours, spend time recovering with your family, or to pay for treatment, rehabilitation or a carer.

What if you become permanently disabled and unable to work?

A serious injury or illness can come out of the blue, leaving you unable to provide for your family. A government Disability Pension is unlikely to fully replace your previous salary. And the National Disability Insurance Scheme, while providing care packages, does not pay regular income or a lump sum.

The solution is Total and Permanent Disability (TPD) insurance. This pays a lump sum which you can use to pay off debts, cover medical costs or invest to provide regular income to help maintain your family’s lifestyle.

What if you fall critically ill or die?

It’s a sad fact that any of us could be diagnosed with a terminal illness or die prematurely in an accident. If this happened to you, how would your partner and children cope emotionally and financially? The kids still need to be fed, clothed and educated, the mortgage or rent must be paid, and your partner may need time off work for extra caring duties, adding to the financial pressure. If you don’t have kids or they have left home, your partner could be left with a mortgage and other debts.

The solution is Life cover, also called Term Life or Death cover. This pays a lump sum on your death or the diagnosis of a terminal illness, allowing your family to focus on supporting each other, secure in the knowledge that the bills will be paid.

All these policies can be bought separately or bundled together as often happens with Death and TPD cover.

You may already be covered for some level of insurance via your super fund, however it might not be adequate for your needs. It’s important to have insurance that is tailored to your personal circumstances, that will protect your family’s financial and emotional well-being come what may. We are here to help.

Weighing up the value of life insurance

It probably comes as no surprise to anyone that there is a significant underinsurance gap between what we would need to maintain our standard of living should the unthinkable happen, and what we are actually covered for in the way of insurance. 

Australia is one of the most underinsured nations in the developed world, ranking 16th for life insurance coverage.i

There are lots of reasons people give for not buying life insurance, but top of the list is invariably cost. Sounds reasonable enough, especially when households are under pressure from increasing costs of living. But dig a little deeper and it turns out the way we weigh up decisions when outcomes are uncertain is not always in our best interests. 

According to something called ‘Prospect Theory’, people fear a certain loss more than they value a larger but uncertain gain. We tend to view money spent on insurance premiums as a loss, unlike money spent on a daily cup of coffee, a pair of shoes or a weekend away, which deliver immediate rewards. 

There’s also a disconnect between what we say we value and what we spend our money on. 

Thinking about the unthinkable

When asked, most people say the thing they value most is family. Yet when it comes to insurance many of us cover our car and our home but overlook our most important assets - our life, our ability to earn an income and the wellbeing of the people who depend on us. 

Thinking about being diagnosed with a terminal disease, suffering a disabling accident or contemplating your own death or that of your partner is uncomfortable. Seeking cover for those possible eventualities is something that is very easy to put off or avoid altogether. 

The real value of life insurance is the peace of mind, that if we die or become seriously ill and are unable to work then the right amount of money will go to the right people when they need it most. 

Types of life insurance

There are different types of life insurance. Death cover provides a lump sum if you die or are diagnosed with a terminal illness. Total and permanent disability (TPD) pays a lump sum if you are permanently disabled due to an accident or illness and unable to work again. Trauma Insurance (critical illness insurance) pays a lump sum on the diagnosis of one of a list of specific illnesses such as a heart attack, cancer or a stroke. Income protection provides a monthly payment if you can’t work due to illness or injury. 

The amount of life insurance you need depends on your family circumstances, your income and lifestyle. While many working Australians have default cover in their super fund, that’s no cause for complacency. It’s often a basic level of cover, which may need to be topped up outside super. 

Take Chris, aged 30. He has a partner, two children and the median level of default life insurance cover in super for someone his age. That is, $211,000 in death cover, $162,500 for TPD and $2,250 a month for income protection. According to a recent report by Rice Warner, the amount someone in Chris’s position needs is closer to $704,000 of death cover, $910,000 of TPD cover and $4,150 a month of income protection.ii

Paying life insurance premiums won’t provide the instant pleasure hit of an espresso, but most people would be surprised to know that the peace of mind that comes from protecting their family’s financial security costs less than their daily cup of coffee. 

Rice Warner estimates the cost of death cover and TPD cover for the average working Australian at less than 1 per cent of salary, and less than 0.5 per cent for white collar workers.iii Which begs the question, what cost do you put on the wellbeing of the people you love most? 

If you would like us to help you work out the appropriate level of life insurance for your family, and the best way to achieve it, give us a call. 
 

i Swiss Re Economic Research & Consulting, 2007
ii Underinsurance in Australia 2017, Rice Warner. 
iii www.ricewarner.com/rice-warners-affordability-study-how-affordable-is-group-insurance-in-superannuation/

An insurance lifeline when you need it most

Trauma insurance is the middle child of the personal insurance family. It’s overshadowed by its better-known siblings but it’s a quiet achiever that will do the heavy lifting when the circumstances require it.

What trauma insurance is and isn’t

Trauma insurance – sometimes known as critical illness insurance – provides a lump sum payment in the event of a major illness or injury, such as a cancer diagnosis, heart attack or stroke. The full list of conditions covered will be set out in your policy.

In 2013, the most recent year for which figures are available, insurers paid out $621 million to 4512 trauma policyholders. That works out to an average pay out of $137,808.i

As with other types of personal insurance, the cost of a trauma policy will vary depending on how likely you are to make a claim. This is calculated with reference to your age, gender, occupation, health status and the amount of cover you’re seeking. A non-smoking 35-year-old male, for example, should be able to take out a standard trauma policy for around $300 a year. This will entitle him to $20,000 if he has a heart attack, $120,000 if he’s diagnosed with cancer and $150,000 if he has a stroke.ii

Why you may need it

You may be wondering why you might need a trauma insurance policy if you have private health insurance. If you have other forms of personal insurance that provide a much larger payout if something goes wrong, you may wonder why you need to bother with trauma cover?

The answer to the first question is that trauma cover pays for rehabilitation, carers, other forms of treatment and loss of income that health insurance does not. The answer to the second question is that trauma is best seen as a complement to, rather than substitute for, these other forms of personal insurance:

• Life insurance pays your dependants a lump sum if you die.


• Income protection insurance replaces (most of) your salary for the period you are unable to work due to illness or injury.


• Total and permanent disability (TPD) insurance provides you with a lump sum payment if you suffer an injury or illness that prevents you ever working again.

If you don’t have any personal insurance, you would be well-advised to investigate some of the more well-known policies before considering trauma cover.

A small outlay for a lot of peace of mind

If you have superannuation you almost certainly have some life insurance, TPD cover and possibly even income-protection cover ‘baked in’, although the amount of cover is often low so you may need to buy a separate policy outside super. Trauma cover can only be purchased outside super, which brings us back to the issue of why bother.

Take the 35-year-old who is paying $300 a year for trauma insurance. Let’s say he’s diagnosed with cancer. He has a life insurance policy but it’s not going to pay out anything unless it’s terminal cancer. He’s got TPD insurance but it’s not going to pay out anything unless the cancer is going to result in a total and permanent disability. He’s got income-protection insurance but that’s only going to pay out, after a waiting period, once proof has been provided that the cancer is preventing him from earning an income.

With trauma insurance, there are no ifs or buts. Once the diagnosis is made, he qualifies for a lump sum of $120,000. That’s not going to set him up for life by any means, but it will allow him to cover medical expenses and pay the mortgage if he needs to, or chooses to, stop working for a while to concentrate on getting well.

If, like our hypothetical 35-year-old, you have financial responsibilities and want the reassurance of a payout if you suffer an insurable health-related setback then trauma insurance may be for you.

Avoiding being under or over insured is no simple task. If you’d like us to help you work out your insurance needs, give us a call.

i Industry Stats 2013, the risk store 2014, http://www.theriskstore.com.au/resources/16/TRS_Claims_Stats_2013.pdf

ii What’s the cost of trauma insurance, finder.com.au 2017, https://www.finder.com.au/cost-of-trauma-insurance

Have your kids got it covered?

Just because your children are adults, with good jobs and maybe even married with children of their own, it doesn’t mean they shouldn’t be considered in your retirement plans.

Family is a risk that many don’t consider when planning for retirement. After all, you probably have little or no debt now the kids are independent and you are retired or close to retirement. Hopefully you feel you have enough money saved to live the retirement lifestyle you looked forward to as you worked to raise your family.

However, unforeseen circumstances and emergencies can impact wealth. What if something were to happen to one of your adult children and they are not sufficiently insured, then who are they going to call? In most cases, it’s you. Few parents would turn their backs on their children in a crisis.

Protecting loved ones

Let’s say the unexpected were to happen and your son-in-law passed away tragically in his late 30s, leaving behind your daughter and two small children. If he had insufficient life insurance, your daughter could find herself struggling to pay the bills on her own.

Most likely you would step up to the plate to offer financial help, or invite your daughter to move back home with her children. All of a sudden, your travel and retirement plans are on the back burner and your well-earned nest egg may start to erode.

In contrast, if your son-in-law had made sure he had sufficient insurance cover, it would be a different story. Of course, you would still need to deal with the emotional trauma of your daughter becoming a young widow, but at least you would know she had sufficient funds to support her family.

Start a conversation

It makes sense to have a conversation with your children to make sure they are adequately covered. You are not only looking out for them but also ensuring that your life plans stay on track, given that it is a time when it would be difficult for you to recover financially.

Life insurance, total and permanent disability, income protection and trauma cover are all insurances about which your children should consider seeking professional advice. For many, life and TPD insurance can be bought through super although it’s important to make sure it provides sufficient cover to meet expenses such as funeral costs, mortgage/rental payments, education, groceries, and recreation.

If your children are concerned about the cost of premiums, you might consider sharing the cost with them.

Even if your children have not yet started a family – perhaps they are still living at home in their 20s – a similar situation might arise. For instance, if they were to face a serious illness or a permanent injury, who would pay the medical bills? If they can no longer earn, the money has to come from somewhere.

Look after their health

It’s not just life insurance you need to consider. Health insurance is also important for your adult children. Many health funds no longer cover children as part of the family premium once they reach a certain age.

Generally speaking, they will be covered up to age 25 while they are a full-time student. If not, their cover may cut out from age 18. Yet if they are injured, private cover may be necessary to get speedy access to treatment and it may be left to you to foot the bill.

If your independent child is under 25 you may be able to pay an additional premium to include them on your family private health insurance. This might be cheaper than them taking out their own private health cover.

Protect your retirement

It’s easy to say you don’t need life insurance once your debts are under control and to an extent this might be true. But your children may still be at the stage of life when they need full protection.

Make a time to chat to them about what cover they have and whether they think it is enough for their needs. If they are unsure, speak to us as we can assess their requirements and provide them with guidance.