Insurance is an important part of managing your money matters. It’s a way to protect yourself against an unexpected financial loss. If you have a mortgage, children or a car it’s generally wise to have some sort of insurance security so if things go wrong, you’ve got help to keep your head above water financially.
John McAuliffe can help ensure that your needs are met with the most appropriate type and amount of risk insurance cover.
A wide range of Insurance options include:
- Income Protection - Claim case studies
- Life Insurance - How much is your life worth?
- Trauma Insurance
- Total & Permanent Disability
- General Insurance - to be referred to our preferred insurance partner.
Income & Asset Protection
Most of us don't like to think about the possibility of something bad happening to us. However, sometimes if we don't consider and plan for the bad as well as the good, we can end up forever on the financial back foot. Insurance can play a key role towards saving you and your family years of hardship in the future.
How much is your life worth?
Putting a number on your life can be a bit disconcerting, possibly even disappointing. The thought of mortality can be sobering and many people avoid the issue altogether. However, we are all going to die and it is common sense to address the topic of life insurance sooner rather than later.
By your mid-30s the chance of contracting a degenerative disease starts to rise sharply. Degenerative diseases include cancer, heart attack, diabetes, arthritis, Parkinson's, Alzheimer's and multiple sclerosis, to name just a few. Any of these can cause debilitation or death, as can an accident.
How much should I insure for?
Deciding on a life insurance payout can be tricky. Some might consider themselves priceless but insurance companies prefer to deal in specifics and they do have limits.
Generally, the higher the lump-sum payout, the higher the premium — to a large extent insurance companies leave it to the individual and market forces to arrive at a figure.
A $1 million term insurance policy, for example, will normally cost a healthy person in their late thirties about $70 a month or $840 a year. Many insurers put an upper limit of about $2 million on an average life. If you wish to insure for more than this, you may have to take out separate policies with different companies.
When calculating the amount of life insurance you want, the first step is to calculate your cost of living — mortgages, bills, food, rent, debt, clothing, transport and so on. This will help you determine how much money you will need to survive if you are unable to work because of a life-threatening condition or how much money your family will need to survive in the event of your death.
One quick method to estimate life insurance is to calculate your gross annual income and times it by 20 years. An average gross weekly family income of $1324 translates to about $70,000 a year or $1.4 million over 20 years.
However, insurance is needs based and the amount you insure for should primarily reflect your stage in the life cycle.
A single person with no dependants does not have a great need for life insurance. Any policy would only really need to cover net debts and funeral costs. Average personal debt outside home loans includes HECS debt, credit card debt, car loans and personal loans and averages $14,400.
For those married with a mortgage, the stakes rise. If one partner dies, the capacity of the remaining partner to repay the mortgage is severely compromised. This is exacerbated by the fact the economies of scale on the cost of living available to couples are withdrawn. Any insurance would need to cover mortgage repayments, other debts and funeral costs, with something left over as a cushion to fund the grieving period.
Couples with children
Life insurance is critical for people with children. According to ABS statistics, 4400 parents die each year. While this is only a small percentage of the 2.7 million families in Australia, if you or your partner prove to be one of the 4400, that is little consolation.
A report by AMP and the National Centre for Social and Economic Modeling shows an average family is likely to spend about $448,000 in today's dollars to raise two children from birth to age 20. Another report in The Bulletin in 2005 estimated that the cost of raising a child to age 18 for a typical higher income family was just over $500,000.
It would be safe to assume then that the parents of a two-child family would need to be insured for at least $1 million. This would cover mortgage repayments, education, food, clothing and other expenses over the life of the child. Inflation also needs to be incorporated into the calculations. Those with businesses also need to calculate business debts and assets.
These figures assume a speedy death. For those suffering loss of income arising from a health problem, medical costs also need to be factored into the equation.
Life insurers offer a number of packages to meet the life stages of different individuals and they usually offer a lump sum or pension in the event of death, total and permanent disablement, accident and trauma. Working from an average figure like this, you will need to determine how much you are prepared to insure yourself for. If a family can't afford to insure both parents, the primary wage earner should be insured.
Types of insurance
How much you insure your life for will depend very much on the type of policy you take. Offerings usually fall under the following categories:
- Term insurance
- Whole-of-life insurance
- Income protection insurance
- Accident insurance
- Mortgage insurance
- Business overheads and insurance
- Trauma insurance
- Policies that mature and return a lump sum or a pension after a certain period are more expensive and have an investment component. They can be regarded not only as insurance but as savings.
Your premiums will be set according to your risk rating. Insurers have four general risk categories:
- Substandard (this normally refers to those with a high-risk job or hobby)
- Uninsurable (those with a terminal illness)
Insurance companies will issue a beneficiary form to new policyholders, asking them to nominate the payee. It is essential that this is completed, otherwise the lump-sum payout can get held up in the estate — sometimes for years, depending on how quickly a will is processed.
It means the proceeds will go directly to your nominated beneficiary as soon as the claim has been processed. This means your loved ones will have access to sorely needed funds in the shortest possible time. Under law, the person nominated on the insurance beneficiary form takes precedence over the benefactors of a will.
Joint or single insurance
Most couples have the option of taking out joint or single insurance. Joint life policies are cheaper but they usually pay out on the death of the first policy holder, leaving the second person uninsured at an age when the premiums shoot up in price. However, so long as all obligations have been met by the first payout, this may be worth it.
To find out more about how We Coach Wealth™ can arrange insurance to suit your needs, contact us using our online Contact Form to arrange a meeting.