Your Money
Live a big business-style life
by Peter Switzer
I know this may sound whacky, but it’s a problem that we don’t live some part of our lives similar to big businesses. Imagine deciding to adopt a Macquarie Bank-approach to life. If anything, it would be materially rewarding.
Say goodbye to Peter Pan ways
Now I’m not suggesting you live your life according to a business plan, though a life plan is not a bad idea. A combination of both would reduce any possible Peter Pan tendencies you might have, and could create room for a mature approach to an important big business issue called ‘risk management’.
Sure, big business can afford risk management, while many of us run away from reality and potential threats by adopting the ostrich-like, head-in-the-sand approach. This is gambling with your life, your loved ones’ lives and possibly your business.
What we’re doing is hoping we don’t become a statistic, but given a whole lot of lives and happiness ride on the bet to ignore reality, it’s time to deliver a reality check.
First up, some people think Workers Compensation is a backstop – it is, but it’s a short-term one and is not guaranteed to be a lifesaver over the long-term. Do yourself a favour and find out how much Workers Comp is good for you. It will be a wake up call.
Next, think through all of the things that could go wrong and write them down. Crisis situations such as: house burning down; business building fire; partner dying or becoming permanently bed-ridden; child becoming ill, needing operations and nursing help – unfortunately, the list goes on.
The truth of the matter
I know we all have limited resources but it shouldn’t stop you facing the truth, and not all protection is expensive. For example, smoke detectors aren’t expensive and changing batteries once a year is neither excessively time-consuming nor expensive.
Business owners will be staggered how cheap business interruption insurance is and they will be really staggered if their business burns down!
For the term of your natural life
Personally, term insurance is a smart starting point for many families. This insurance provides an agreed benefit, which is the sum insured on death or the existence of a terminal illness for the life insured.
Premiums – what you pay – can increase with age, or be level locking in a sum insured and a premium for a set period.
The sum can be indexed for inflation and there usually are exclusions (such as suicide) within 13 months of taking out a policy.
Optional add ons can be total and permanent disability (TPD) benefit, which pays out if the person insured is disabled permanently. You can also consider insuring for a trauma benefit. The policy will list events such as cancer, heart attack, etc.
With all insurance you should read the fine print so you understand what coverage you have but it’s important and so it only makes sense that you’re aware of all the important issues.
If you had term insurance for $500,000 and further $200,000 TPD cover, any payment for TPD would reduce the money paid at death to $300,000.
For those fearing being kicked out of term insurance as you get older, you can pay for guaranteed insurability and you can also pay for a premium freeze to hold premiums constant.
Term insurance can be used for mortgage protection, which means if the breadwinner dies the home won’t be lost. It can help with estate protection, which might mean that obligations are met on behalf of the deceased so the remaining partner won’t have to sell the family home.
You can even insure to ensure a family is protected if parents die or are incapacitated. This would pay for household help and meet life and education expenses. It can even be used for debt protection.
Business loans can be insured and partners can use insurance to sort out the problems when one dies or is permanently injured. And key person insurance in a business is critical when one person’s health determines the longevity of the business.
With all policies, look closely at the exclusions and other details. For example, some TPD policies might pay out if the insured can’t work at what he is trained specifically to do. However, if his training means he can do other work there might not be a payout!
The origins of trauma insurance
Interestingly, you can thank South African heart surgeon Marius Barnard – yes, brother of Christian – for trauma insurance. As his patients did not die, insurance did not cover them and they encountered financial difficulties while convalescing. He pointed this out to the insurance community.
Disability insurance might replace a percentage of an old income but what about the medical and hospital bills? This is where trauma insurance comes in.
Parents with many family responsibilities, key people working under stressful conditions, and older people getting into riskier health territory should look at this sort of insurance.
Another policy worth thinking about is an income replacement policy to keep income up if circumstances stop you from working.
Do your own homework or go to a trustworthy adviser or two, or three, to get an objective picture of how risky your life is and what you can do to protect you and your family.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
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Published on: Friday, July 08, 2011
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