Do I have enough insurance?
Personal insurance is an important component of a financial plan for most of us. We all get excited over the prospect of building our wealth over time – saving, investing, strengthening our financial position. But just as important is protecting that position! And not necessarily just your position now, but what you want your financial future to look like.
Ordinarily, we go about our business and slowly work towards our longer-term goals – and luckily for most of us, that is how things play out. But unfortunately, in life, things can go wrong. Whether its an unexpected death in the family, ongoing or a permanent disability, serious illness – they all can affect what we are trying to achieve financially, and depending on the timing of such an event, will determine the extent to which you are financially impacted. Insurance is often about bridging a gap that exists between where you are now and where you want to be.
What is important to identify (whether an individual, part of a couple or family, or involved in a business) is the financial impact such an event would have?
Life Insurance
How are those around you impacted by your death? Do you provide for a family and therefore need to consider an ongoing level of income support? If you are the sole provider, it could be a permanent income amount. What about obligations such as debt repayments – do we need to leave your beneficiaries or estate debt free? Funeral costs, education fees etc. Without appropriate insurance or sufficient assets available to still allow your family to achieve all that you wanted them to, life could look very different.
Alternatively, if you are a key person in a business or a part owner, what impact does that have? Do we need to allow for reduced revenue or profitability, or a plan around exiting the business and realising your equity in the business?
Income Protection
Quite simply, if your income switched off tomorrow, what happens? Most people would get by for a few months at most, but unless you’re at the back end of your career with enough assets to generate sufficient ongoing income, the money is going to run out at some point. Your ability to work and earn an income is in the most part, your greatest asset. Therefore, ensuring you always have an ongoing income is arguably one of the most important aspects of your wealth protection strategy.
Total and Permanent Disablement (TPD) insurance
Similar to income protection, this is based on ability to work – but unlike income protection, we are looking at a situation where you’re unlikely to ever work again. What does that look like financially? What do you owe? Do you have income protection? Is that sufficient to provide for living needs? Do you need to supplement that ongoing amount further? What further costs could be relevant when living with a disability? Do you own it through super – how much tax would you owe on a benefit payment?
Trauma insurance
How does a critical illness affect us financially? This one can be a little hypothetical. Some might be content with the public system and dictated by what that treatment looks like. Others will say that they have private health insurance. But what they don’t realise are the limits of private health insurance and the extent to which out of pocket costs still add up. Trauma or critical illness policies cover many different types of conditions, and they can have varying levels of ongoing costs. They also have varying durations. One person’s diagnosis may involve a procedure and they are okay the next month, whilst another’s diagnosis could mean an ongoing battle over many years.
For me, the primary purpose of this insurance is to have money available to provide for ongoing costs and treatment. We want to avoid depleting our own assets that we have worked hard to build, in order to provide for these outlays.