Call us on 1300 794 893

Your Money

Thinking about life insurance

The death of a loved one can bring unforseen pressures to a family. That’s why it’s important to be prepared. I receive a number of enquiries from clients and readers asking how they can make sure their family will be financially secure should something happen out of the blue.
Ask yourself these questions. Are your family dependent on you for financial support? Will they be financially stable in the event you can no longer provide that support?
Take into consideration these statistics from the Australian Institute of Health and Welfare. According to the Institute, 22 per cent of male deaths and 14 per cent of female deaths are those aged between 25 and 64. The most common cause of death for females aged 25 to 44, and males and females aged 45 to 84 is cancer. The most common causes of death for males aged 25 to 44 are injuries and poisoning. Based on data from 2005, the risk of a male being diagnosed with cancer before the age of 75 was 1 in 3, and for females, 1 in 4.
Many of us think this won’t happen to us, and hopefully it never will. It is, however, important to be aware of what insurance is available to protect you and your family in the event that the unexpected occurs.
The following case study from ING highlights the significance of insurance, especially if your family are dependent on you for their financial welfare.
Of course, before making any important financial decisions like this, it’s crucial to speak to a trusted financial adviser to ascertain what insurance will best suit your needs and circumstances.
Despite thinking he wouldn’t need it, Richard, a 36-year-old electrician took out a life insurance policy in 1996 after guidance from his financial adviser, and made the owner of the policy his wife Sally. His adviser stressed how important insurance was now that Richard was married with children, a three year old and a baby on the way, and that Sally had stopped working to look after the young family.
Five years later, Richard developed a swollen ankle. His GP had some tests done and through a bone marrow test, Richard was unfortunately diagnosed with leukaemia.
Richard lost his life a year later. The amount insured was $800,000, which Sally received as a lump sum. With the assistance of her financial adviser the money was allocated as follows:
  • $100,000 to pay off the house mortgage completely
  • $7000 was used for Richard’s funeral costs
  • $50,000 was put into investment bonds for the children’s future education and school fees.
  • $630,000 went into a mixed group of investments to hopefully earn 6 to 8 per cent per annum, and draw down the capital to have around $45,000 each year to live on. A part of this would also go into superannuation for Sally.
  • $13,000 split between immediate living expenses and a holiday for the family to visit relatives and take a good break to get things in order.
As a result of Richard taking out a life insurance policy, Sally and their children’s financial future was certain.
Lets have a look at how it works. Upon death of the insured, life insurance provides a lump sum or instalments paid to the policy owner. The policy owner can be a spouse, family trust, a company, or the insured, in which case the amount will be paid to his or her estate.
You can often add optional total and permanent disability cover which covers you when you are not able to work due to injury or illness, or trauma cover, which pays a benefit to you if you are diagnosed with a trauma condition such as cancer, stroke, blindness or severe burns.
How much cover you need can be determined by talking with your adviser. A few issues to look at are: how much it would cost to clear all debts such as mortgages and personal loans; how much you would need for future costs such as retirement funds, children’s school fees or university fees; and how much your family would need to maintain their lifestyle.
Your occupation will also affect how much cover is required and the cost.
Insurance is about being prepared for events you were not expecting and avoiding the large financial burden it may bring to you or your family.

Of course, you all know we are financial advisers and I would never want to be so gratuitous as to plug my business in a newsletter, but I think insurance is a really important topic that you can’t ignore. I implore you to be really objective about what can go wrong and then ask am I prepared? If the answer is no, then be wise enough to do some investigation and if you need help we would be happy to assist. 

Published on: Thursday, April 09, 2009

blog comments powered by Disqus
Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300