Provided by Mercer: 8/10/08
Most people insure their house, contents and car for the replacement value – but many fail to ensure they have adequate coverage for their own futures, and those of their families.
Have you insured your most valuable asset?
It’s despite some scary statistics:
- An estimated 106,000 new cases of cancer are diagnosed each year1.
- Six in 10 people with dependent children haven’t enough life insurance cover to look after their families for one year if they were to die2.
- Each year, around 4,400 parents with dependent children die3.
Personal insurance comes in four main forms:
1. Life insurance is, somewhat paradoxically, paid on death (or, with some insurance policies, diagnosis of a terminal illness).
2. Total and permanent disability (TPD) insurance is paid when a person is permanently – and severely – disabled.
3. Trauma insurance is paid in the event of serious medical conditions such as cancer, stroke or heart disease, or a major organ transplant.
4. Income protection insurance replaces the earnings of the person insured (usually to around 75% of the person’s previous earnings).
The first three are most commonly paid as lump sum payments while income protection is usually paid as a monthly payment. 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 of insurance.
Studies have found that around 80% of Australians are underinsured – to prevent being one of them, here are some tips.
1. I’ve got insurance with my super fund. Isn’t that enough?
Many people have some kind of insurance with their superannuation. This can be a cost 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 does happen to offer income protection, the maximum benefit is normally only paid for two years – not much use if you are only 40 and your disability prevents you working for an extended period of time. Cover is likely to be needed until the age of 65.
2. How much do I need?
A study by the Investment and Financial Services Association (IFSA) found Australia’s insurance gap totalled around $1,370 billion dollars4.
Personal insurance needs to provide long-term financial security to you and your family. To estimate your required insurance levels, add up your debts and 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 $224,0005 – on top of these are the everyday costs of living.
The right combination of cover is also important – for instance, you may wish to have trauma insurance (which comes as a lump sum and is paid upon diagnosis) and income protection (paid as a monthly amount on an ongoing basis).
3. But I thought I was covered…check the policy definitions
Policy definitions differ. As previously mentioned, in the case of income protection insurance, check the length of term – ideally it should be until you reach the age of 65 (the common retirement age) rather than two or five year periods. Also 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/she will be paid if a hand is lost in an accident and surgical work can’t 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. Similarly the test to determine permanency of disability in some TPD policies differs – some policies use the phrase “unable ever’ compared to “unlikely ever” which is a more onerous test.
4. Where should you find it?
Insurance products vary and the details can take time to digest properly. Some companies have policies that are particularly suited to doctors and dentists, others for women, and others for tradespeople. Speak to an insurance broker or a licensed or appropriately authorised financial adviser to find the most appropriate product for you. They’ll know – based on your profession, age, gender and other individual circumstances – 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.
Get a free consultation - over the phone or in person
Mercer Wealth Solutions is offering a free consultation with our specialist insurance advisers to help you find the cover you need to give you peace of mind.
Our advisers will review your current level of insurance cover (if any) and provide an insurance consultation at no cost. This consultation takes approximately 30 minutes and can be completed either in person or over the phone.
As an additional service, they can also help you find a better rate or offer for any existing insurance cover you have.
To take advantage of this offer, simply request an appointment below and an adviser will be in touch shortly.
1 Cancer Council Australia
2 Rice Walker Actuaries, Analysis of Insurance Needs (2005)
3 ABS
4 IFSA Securing Australians’ Financial Wellbeing, July 2007
5 Source: Mercer
This information has been prepared by Mercer (Australia) Pty Ltd ABN 32 005 315 917 for general information only. The information does not take into account your personal objectives, financial situation or needs. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult a licensed or appropriately authorised financial adviser before making any investment decision.
