Insurance Cover

When most people think about insuring their valuables, they think about their car, their home, or maybe an expensive piece of jewellery. What many people fail to realize is that all of those things are purchased from your income. Your income is typically your largest asset.

Think about how much you earn in a year, and think about what that would be over a lifetime. If an individual earns $50,000 per year and he or she is 25 years old, in a 40-year period, he or she will earn $2 million, and that's without any sort of inflation. If you factor in modest inflation, the number could easily be twice as high. We don't hesitate to insure our homes, our cars and other valuable possessions. So why would you not insure something that is infinitely more valuable than all those things?

If you're still not convinced that your income is worth insuring, think about how long you'd last without your pay cheque before it would be difficult to pay for everyday expenses. A recent a study found that 70 percent of working Australians couldn't make it 1 month before financial difficulties would set in. More than 1 in 4 Australians wouldn't make it a week.

With Australia facing its more serious financial crisis, consumers are deeply concerned about their financial futures and are seeking ways to achieve and maintain basic financial security.

While you may be focusing attention on cost cutting measures, you should also consider bolstering your insurance coverage. Now, more than ever, you need to understand that your ability to earn an income is your most valuable asset. If you lose your pay cheque how will you make ends meet at a time when your savings are depleted?

The first step in establishing your financial security is to confront the biggest threats to it. That requires asking yourself some tough questions: What would happen if you or your spouse became sick or injured – or died? What if you lost your job? What if your home was seriously damaged in a storm or by fire? What if you were in a serious auto accident? All of these situations are potentially devastating to your family's financial health. That's where insurance comes in.

Life insurance can provide your family members the resources to maintain their lifestyle when you die. It can replace some or all of your income. It also can pay off debts and cover funeral costs. It can even help fund longer-range needs like college tuition or retirement. Don’t forget to insure your spouse as well, even if he or she doesn't work outside the home. A stay-at-home parent provides vital household services that would be expensive to replace, like childcare, transportation and household chores.

Good financial advice is about wealth creation and wealth protection.  Wealth protection (insurance) helps protect your ability to create wealth.  We all expect to stay healthy and live to a certain age.  However, the unexpected does occur and may impact on your financial goals.?

Why insure?

THE CHANCES OF A DISABILITY OCCURING ARE MUCH GREATER THAN MOST PEOPLE REALISE

Insurance provides peace of mind.  If an unexpected illness or accident were to impact your life, the financial effect to you and your family could be minimised, due to having sufficient insurance cover in place.  Like home or car insurance, personal insurance is something you pay for, hoping you never have to use it.

Some of the questions you need to ask are; if I am unable to work, how long can I provide for myself and my family? Who will pay the bills, the mortgage and the like? If you were to die or be permanently disabled, how will your dependents be provided for and how will this affect their lives?

Life Insurance Cover

Life insurance provides financial protection for your family if you were to die or become terminally ill.  Typically it is payable as a once off lump sum. The amount of cover you need varies, and is based on your debt levels, financial commitments and income needs for your financial dependents.  The cost of life insurance varies depending on your age, occupation and health levels.

As life insurance is usually not tax deductible to an individual, often it can be advantageous to take out this type of insurance within superannuation, as typically the super fund can claim a tax deduction for the premium. This has the additional benefit of being funded by your super rather than your own take home pay, though this is not always possible

Total and Permanent Disability (TPD) Cover

TPD cover is often purchased with Life insurance, although it can be held as a separate policy or attached to Trauma insurance. As with Life cover it is usually paid as a lump sum.  TPD is typically payable if you are unlikely to be even able to work again due to illness or injury.  The precise definition of TPD varies between insurance companies so it is important to consider the policy documents carefully and possibly seek professional advice about which policy is suitable for you.  TPD is usually used to cover debt, medical expenses and the cost of modifying your home to accommodate permanent disability. It may also be used to provide some income replacement. Similar to Life Insurance, TPD cover can sometimes be taken out within super due to the tax and cash flow advantages.

Trauma Cover

Trauma cover will pay a lump sum to you if you suffer a specific traumatic event, such as being diagnosed with cancer or a heart attack.  The payment is made when the diagnosis is confirmed, provided you survive for at least 14 days (or less depending on the insurer). You do not have to cease work to qualify to receive this benefit.

Trauma cover is designed to help cover the immediate costs of a significant medical event, or just offer some breathing space while you recover from your illness. Often the illnesses and injuries covered by trauma cover can cause serious disruption to your finances and personal circumstances without necessarily triggering the payment of other insurance covers. As such it is an idea safety net to compliment a full insurance strategy.

Income Cover

Income Protection insurance will typically pay a monthly benefit if you are unable to work due to illness or injury. You can usually insure up to 75% of your pre tax salary, although specialist options are often available to increase this cover above the basic 75% limit. Benefit payment periods and waiting periods can be tailored to meet your personal situation.

Income Protection will cover both temporary and permanent disablement. The premiums for Income Protection are usually tax deductible, though benefits received are typically taxable, similar to the income it is designed to replace.

Insurance within your Superannuation Fund

Insurance can be more affordable when purchased in a super fund.

Pay for insurance without reducing your cashflow

When insuring inside super, you can arrange to have the premiums deducted from your existing superannuation account balance, without making additional contributions to cover the costs.

This can make personal insurances affordable if you don't have sufficient cashflow to fund the premium payments.

The trade-off is that you will use up some of the money that could otherwise meet your living expenses in retirement.  While this could impact your lifestyle when you're no longer working, think of what could happen to your family's lifestyle in the interim if the unthinkable was to happen.

Without insurance, your family could run down your savings very quickly and face financial difficulty well before your intended retirement date.

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