The True Value of Insurance

KEY POINTS:

• Most super funds offer insurance. However, it’s important that you ensure the cover is enough for you and your family.

• As your life changes, your insurance policies may need to change with you.

• We’re here to help. We can review your policies with you.

Research shows that only around 16% of people actually have life insurance.(1) Also, only 6%(2) of consumers have income protection, while one in six men and one in four women are expected to suffer a disability from the age of 35–65 that leaves them away from work for six months or more.(3) While these statistics can be confronting,the flipside is that checking, maintaining and possibly upgrading your insurance coverage can provide tremendous peace of mind.

What’s your most important asset?

Most people have insurance for their home and motor vehicle, but fail to cover their most valuable assets – their life and their ability to earn income over the long term.

Which policies are relevant to me?

There are four main types of personal insurance:

• Income protection – helps you meet your financial commitments by providing regular payments if you are unable to work due to sickness or injury.

• Trauma cover – provides a lump sum payment after the occurrence of a serious medical condition (such as cancer, stroke or heart attack).

• Disability cover – total and permanent disability (TPD) cover provides a lump sum payment if sickness or injury leaves you totally and permanently disabled.

• Life cover – a lump sum payment to your nominated beneficiary in the event of your death or a terminal illness.

How can I be sure I’m covered?

Given the various types of insurance available, it can become overwhelming or confusing about what is best for you. You also don’t want to be stuck paying for cover that you don’t actually need. We can review your polices with you and provide practical and ongoing advice on personal insurance.

I already have a personal policy, isn’t that enough?

If you already have personal insurance you may appreciate some of the peace of mind it can bring. The most important thing is that you keep your policy in mind and not just tucked away in a drawer. Do you know how much you’re covered for? As your life changes, it’s vital to ensure that your policies change with you. If you get married, take out a mortgage or have a child, take a look at your coverage. You may find that you are still covered sufficiently or that you wish to upgrade some or all of your policies.

But aren’t I covered by my super fund?

It’s true that most super funds offer some level of income protection and death or disability cover. However, it’s important to read the ‘fine print’ and ensure that the coverage you have is enough to provide for your family if the worst were to happen. In some cases, the default coverage simply isn’t enough if you have children or other family members in your care. For example, the average amount of lump sum death cover is just over $150,000.(4)  Would this be enough for your family? Also, policies like income protection may have waiting periods for payment. Therefore, you need to know what these waiting periods are and how long you and your family can survive on a reduced or non-existent income.
Things like mortgage payments, car repayments, school fees and everyday expenses keep occurring no matter what. If you were to become sick, injured or if the very worst were to happen, you would want your family to be able to carry on as normal.

Case study – Tom’s story

Tom is a successful lawyer and is married to Janette. He has worked hard over the past ten years to accumulate valuable assets. To support his desired lifestyle, Tom decided on a $300,000 trauma policy to protect him against cancer and heart attack.

Unfortunately, last year Tom was diagnosed with prostate cancer and was unable to work for six months while he underwent treatment and recovered from the illness.

Tom was paid a trauma benefit of $300,000 from his policy which assisted with Tom’s recovery. The insurance policy replaced his income and paid his medical expenses. Without it, Tom would have had to rely on Janette’s income.

Tom continued to pay his annual policy fee and 12 months after the initial payment of the trauma benefit, Tom bought back his $300,000 trauma policy at standard premium rates.

Unfortunately, six months later Tom had a serious accident, suffering a major head trauma.
Tom and Janette were relieved that, as a result of the trauma policy, he qualified for another trauma benefit of $300,000.

Again, they were able to meet their expenses and Tom was able to recuperate with some peace of mind.

 

Source: CommInsure, Protection and peace of mind for life (based on CommInsure average claims in 2008 calendar year), page 18, 2011.

1 Roy Morgan Research, 6 months to April 2009, Australian population aged 14+.
2 Roy Morgan Research, see footnote 1.
3 Institute of Actuaries, Table IAD 89-93 – white collar males and females.
4 CommInsure, Protection and peace of mind for life (based on CommInsure average claims in 2008 calendar year), page 9, 2011.

Are you wasting money on insurance?

It’s the middle of the night and you’re jolted awake by extreme pain in your chest. You feel like the life is being crushed out of you … you immediately realise you’re having a heart attack. Your partner frantically phones 000 and as you lay clutching your chest waiting for the ambulance to arrive all you can think about is how your family will be supported if you die.

The pain intensifies.

Hopefully this will never happen to you, but what if it did? Take a moment to think about how your family’s living expenses would be met if your income stopped tomorrow.

The average Australian household spends up to one third of its gross income on mortgage repayments. Most of us would rely on our regular income continuing indefinitely in order to meet such an expense. And at this point we haven’t even got to putting food on the table.

Income protection (or “salary continuance”) insurance policies usually provide up to 75% of your salary or business income in the event that you cannot work due to illness or injury. Of course, you might have sick leave, other compensation arrangements or perhaps a cash reserve to rely on for a while, but what happens when these run out?

Transfer the risk

Just like any other insurance, protecting your income is about transferring risk to someone else. By paying a premium each month, you have the security of knowing that should anything happen – your car is stolen, your home damaged by fire or you suffer a serious illness or accident – your financial loss will be minimised.

Interestingly, almost 90% of Australians consider the cost of car insurance worth having, yet only 6% of us insure our income. And what about the apparent contradiction that when you buy insurance you hope you never actually have to
use it? Does this mean it is a waste of money? Why take that risk when having peace of mind is worth far more than dollars? Once you have insurance in place, you can get on with enjoying life, and if you do get sick or badly injured, money will be one less thing to worry about.

Sources: HIA / Commonwealth Bank Affordability Report, February 2008
Insurance Council of Australia, Consumer Tracking Survey, January 2006.
Roy Morgan Research Insurance Report, September quarter 2006