Simple Certainty | Personal Insurance: Is Your Greatest Asset Protected?
Humans aren’t always the most logical creatures. We don’t think twice about insuring the car and the home, yet we routinely fail to properly insure the biggest asset of all: our ability to earn an income.
Personal insurance is vital to protect you and your family
The unforeseen illness, accident, injury or death: it’s one of our greatest fears, and for good reason. At some stage in their lives, 60% of Australians will need to take a prolonged break from work as a result of illness or injury.
Often, it’s not ourselves that we worry about, but those who rely on us, those we are responsible for. How do we protect our standard of living when our capacity to earn has been significantly impacted?
Through personal insurance.
Unfortunately, too many people aren’t familiar with the types of personal insurance available, and those that are often don’t have the right level of cover. At Halcyon, our role is to determine precisely what types and what levels of cover you require through a rigorous Needs Analysis.
First, though, let’s take a look at the types of personal insurance we should all be considering.
The types of personal insurance
In the event that you die or become terminally ill, life insurance pays a one-off, lump sum amount to your beneficiaries. They can use this to continue, as best they can, the life you had planned together. This money might be used to pay off a mortgage, cover medical expenses, pay for the children’s education or simply cover day-to-day living expenses. There are no strings attached; life insurance proceeds can be spent any way the beneficiary likes.
Total and permanent disability (TPD) insurance
TPD insurance pays a one-off, lump sum amount to the life insured in the event you become permanently disabled and are never able to return to work. As with life insurance, there are no strings attached; it can be used to cover home modifications, pay medical bills, pay off debts, or simply cover everyday living expenses. Sometimes, TPD insurance is included in super, but you need to be sure it matches your needs; the definition of ‘total and permanent disability’ can be very restrictive depending on the policy.
Trauma insurance pays a one off, lump sum payment in the event that you suffer one of the medical conditions listed under the policy, such as cancer, heart attack or stroke (among others). Once again, this money can be put towards anything, but it’s generally used to cover medical expenses. Trauma insurance is never funded by super due to SIS regulations.
Income protection insurance
While you are sick or uninjured and unable to work, income protection insurance pays an ongoing monthly income of up to 80%. This can continue until you are able to return to work or turn 65, whichever comes first. This insurance may be included in your super, but you need to check that it covers your particular needs.
The Needs Analysis process
You don’t want to pay for more than you need, but you also cannot afford to be underinsured. Our Needs Analysis process determines precisely the level of cover you require to remain in the same financial position you held prior to injury or illness. No impact on long term goals, no stressing about your financial state. This allows you to focus on getting healthy again.
Methods of paying for personal insurance
Using superannuation benefits
There are always competing interests for our hard-earned money – the mortgage, the kids’ school fees – so the costs of premiums unfortunately mean a lot of Australians are underinsured.
There are, however, ways of paying for insurance that don’t affect your take-home packet. One such strategy we commonly employ is the use of superannuation benefits to help fund those premiums. We can effectively utilise our employer contributions to meet the costs of the covers we need. Your personal cash flow can then still be directed to the mortgage or a much-needed holiday.
Yes, such a strategy would slow the growth of retirement benefits, but having sufficient covers in place while having high levels of debt and dependent children may be more of a priority at this point in a your life . It is a trade-off and something you should speak with your advisor about.
Baby boomer bank
Something we commonly bring up with our baby boomer clients is paying for their children’s insurance. If adult children don’t have adequate cover and the unthinkable happens, they can find themselves stuck with a mortgage they can’t service and school fees they can’t pay. Often, this is when they turn to the bank of mum and dad.
As you would expect, this unexpected expense has the potential to derail retirement plans.
A simple (and much cheaper) solution is to help fund the necessary insurance premiums for adult children. This would provide significant peace of mind for all involved.
A chat with your financial adviser is always the first step. We can help you understand exactly the level of cover you need, and the best way of funding it.
Please note this is general information only and you should always seek your own personal