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Protect Your Lifestyle – Why You Can’t Afford to be Underinsured
Most of Australians religiously and dutifully insure their cars and homes. Yet, in a bizarre way, a majority of us drag our feet when it comes to taking out life insurance policies. Whilst we live in the lucky country this can’t blanket the fact that accidents happen, and we are “dangerously underinsured.” So dire is this problem that as much as 95% of Australians are underinsured, and a further 38% of us have no life insurance cover at all. We lack insurance that would appropriately support our lives and the safety of our families in case of injury or illness.
Why are so many Australians underinsured?
Maybe it’s because there is little knowledge about the various plans and benefits. Or perhaps details on the multiple types of insurance products are too complicated for the average Aussie family to debunk. Some even claim that it’s because of an inherent attitude that “nothing bad is going to happen.” Whatever the reason, this attitude could lead to trouble. An important question to ask yourself is – how long could you last without your income? If your answer is not long, then chances are you need some sort of personal insurance. So, let’s shine a light on personal insurance.
What are the types of insurance?
There are several different types of personal insurances and depending on your circumstances you may need one or several types. Depending on the type of cover, the insurer may require your medical history which you can get from your doctor. Insurers may refuse your claim if you don’t give them this information, and this could affect any life insurance you apply for in the future.
Income Protection is designed to pay or provide you with a stream of income every month in case you sustain an injury and have stopped work because of the accident. It pays up to 75% of your gross monthly income for a set time e.g. 2 years or until you are 65 or 70. When selecting your level of cover you will need to pick a waiting period (generally 30 to 90 days) before you can make a claim.
Life insurance pays a lump sum benefit to your beneficiaries when you die. When deciding on how much cover you want think about:
- Your debts
- You children’s future childcare and education costs
- How much income your family will need to live comfortably
The higher the level of cover, the higher the premiums. Life cover is ‘guaranteed renewable’, meaning it will generally only stop if you stop paying for it. It will continue even if you suffer an illness or injury, which would otherwise prevent you from taking out life cover.
Trauma insurance is cover for critical illnesses. It covers you if you are diagnosed with a specified illness or injury which can have a significant impact on a person’s life, for example cancer or stroke. Trauma insurance pays a set amount and can be used for things such as private medical costs, an income stream if you stop working, debt repayments, adjustments to your housing and lifestyle changes.
Total and Permanent Disability (TPD)
TPD provides protection against total or permanent disability caused by an accident, illness, or injury. If you sustain permanent or total disability due to the given reasons, you are paid a lump sum benefit to help you with expenses.
What cover do I need?
The level of cover you need depends on you and your family’s personal circumstances. It is recommended that you get advice from a certified financial planner when taking out insurance. Not all policies are equal, and they can advise which policies will suit your needs.
For example, many believe that they have life insurance through their superannuation fund which may in fact be true. What many don’t know is how much their families would receive upon their death and are often shocked to hear it can be as little as $50,000. A question you need ask yourself, particularly if you are the main income earner is, how would your family pay the mortgage upon your death? In these instances, as specific life insurance policy with a larger payout sum may be more prudent.
What are the costs?
Costs depend on your age, gender, smoking status, health status (pre-existing conditions) and the level of cover you want. The earlier you take out life insurance the cheaper the premium will be as they are based on the age you are when you start the policy.
If cash flow is an issue, you can pay income protection insurance through your superannuation. This means that you don’t have to find extra money each month to pay your insurance, yet you are still covered. Additionally, income protection premiums are generally tax deductible.
The Parting Shot
“Today’s preparation determines tomorrow’s achievement”
We cannot say what tomorrow will bring, but with adequate insurance we can be ready for whatever we may face. The way to be prepared for the ups and downs of life if to be appropriately insured. Stop putting off taking out insurance, it is easier than you think. Book an appointment today with Elliot Watson, Certified Financial Planner and get your personal insurances sorted, for the protection of you, your family and your lifestyle.
The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. The views expressed in this publication are solely those of the author; they are not reflective or indicative of licensee’s position, and are not to be attributed to the licensee. They cannot be reproduced in any form without the express written consent of the author. Elliot Watson Financial Planning Pty Ltd and its advisers are Authorised Representatives of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.