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  INSURANCE - PERSONAL
  Insure your most valuable asset - your own future and that of your family

HAVE you insured your most valuable asset?

Most people insure their house, contents and car for the replacement value - but many fail to ensure they have adequate cover for their own future and that of their family.
This is despite some scary statistics:

  • An estimated 106,000 new cases of cancer are diagnosed each year.
  • Six in 10 people with dependent children do not have enough life insurance cover to look after their families for a year if they were to die.
  • Each year, about 4400 parents with dependent children die.

Personal insurance comes in four main forms:

  • Life insurance is, somewhat paradoxically, paid on death (or, with some insurance policies, diagnosis of a terminal illness).
  • Total and permanent disability (TPD) insurance is paid when a person is permanently - and severely - disabled.
  • Trauma insurance is paid in the event of serious medical conditions such as cancer, stroke or heart disease, or a major organ transplant.
  • Income protection insurance replaces the earnings of the person insured (usually to about 75% of the person's previous earnings).

The first three are most commonly paid as lump sums and the last is usually paid monthly. In all of these cases, the insured needs to meet the requisite definitions as well as other terms and conditions contained in the relevant policy.

Studies have found that about 80% of Australians are underinsured. To prevent being one of them, here are some tips.

I have insurance with my super fund. Isn't that enough?
Many people have some kind of insurance with their superannuation. This can be a cost-effective and tax-effective way to take out insurance, but there may be a number of limitations.

Insurance cover in super may only provide life or TPD cover, not trauma or income protection. If it offers income protection, the maximum benefit is normally paid for only two years, not much use if you are only 40 and your disability prevents you from working for an extended period of time. Cover is likely to be needed until you are 65.

How much do I need?
A study by the Investment and Financial Services Association found Australia's insurance gap totalled $1370 billion.

Personal insurance needs to provide long-term financial security to you and your family. To estimate your required insurance levels, add your debts with how much it costs to live and raise a family. The average home loan debt is $217,000, average personal debt is $14,000 and the cost of raising a child to the age of 20 is $224,000. On top of these are the everyday costs of living.

But I thought I was covered …
Policy definitions differ. In the case of income protection insurance, check the length of term - ideally it should be until you reach 65 (the common retirement age) rather than two or five-year periods.

Check definitions such as "own occupation" and "any occupation", which can make a big difference. To illustrate: if a surgeon is insured under "own occupation", he or she will be paid if a hand is lost in an accident and surgical work cannot be undertaken.

However, if the surgeon is insured under "any occupation" and can still work as a GP, only a partial claim would be paid.

Where can I find it?
Insurance products vary and the details can take time to digest. Some companies have policies that are suited to doctors and dentists, others for women or trades people. Speak to an insurance broker or a licensed financial adviser to find the most appropriate product for you. They will know where the best products for you can be found.

Don't forget: reassess your insurance regularly. Just as you would increase your home insurance over time to cover higher building costs, changes in your life - more children or a new mortgage - will affect the level of cover you need.

 

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