We are always hearing about how important it is to insure our own lives and income, but what about insuring our children’s?
How would your adult child and their family survive financially in the unfortunate event of an accident or an illness that prevented them earning an income for an extended period of time?
Income protection, TPD and trauma insurance are often not a consideration to a young family in today’s financial climate with many struggling with mortgage repayments, education spending and increased living costs.
But what would be your role if your child and their family were suddenly without an income? Without adequate insurance how would they cope?
What if you had helped your child to buy his or her first home and that child suffered a long term-illness or disability? How would that affect you if they couldn’t make the repayments?
Here’s a scenario…
Alan and Joanne’s married son Tim was involved in a car accident, sustaining an injury that prevented him from working for two years. Unfortunately, Tim did not have income protection or accident insurance.
The bank foreclosed on his mortgage and Tim and his young family were forced to move in with Alan and Joanne. Eventually, Tim recovered and was able to return to work.
Aside from the emotional impact on Tim and his family, Alan and Joanne’s retirement plans were seriously compromised and Joanne’s health deteriorated due to the extra stress of the situation. Joanne was diagnosed with severe depression.
What could Alan and Joanne have done differently?
They could have asked Tim if his income was covered in the case of an unforseen illness or injury and knowing that the young family were putting all of their spare cash into their mortgage, they might have offered to help pay for adequate insurance cover.
Even if you are not in a position to contribute to the cost of their insurance, raising the issue with your adult children and encouraging them to talk to a financial professional could be some of the best guidance you could ever give them.
We all hope that bad things won’t happen to us, but what if they did? These people held the same belief until…
Jordan started his own business servicing computers after working for a major company for many years. At age 38, he was enjoying the freedom and control it gave him. Unfortunately his car collided with a truck on the way to see a client and Jordan suffered a severe whiplash injury. He couldn’t work for two months and the loss of income has made life hard for his young family. He didn’t think to arrange income protection insurance to replace the workers’ compensation cover he’d had with his former employer.
By their late 40s, James and Mel had worked hard to reduce their mortgage and used some of the equity in their home for a loan to buy an investment unit. It was tenanted and had the potential for long-term capital growth. Sadly, James died suddenly from a stroke. On a reduced income Mel couldn’t afford to keep paying the interest on the investment loan. The unit had to be sold quickly at a loss. They didn’t think to increase James’s life insurance when they borrowed for the unit.
At 42, Sarah is a successful business owner and prides herself in managing her personal finances well. She has a diversified portfolio of property and shares. Last year she contracted breast cancer and her work was disrupted with tests and hospital treatment for five months. She has now recovered but the medical bills made a severe dent in her finances so she was forced to sell a big chunk of her share portfolio at short notice. Sarah didn’t know that trauma insurance would have paid her a lump sum if she was diagnosed with a critical illness.
Three important lessons can be learned from these cases.
Firstly, the unexpected can happen to anyone.
Secondly, take the time to review your insurance arrangements at least once every year. If there are changes in your circumstances – new job, new loans, family changes, etc – arrange a meeting with your insurance adviser.
Thirdly, talk to an expert. There are many different choices of insurance and it pays to have a specialist analyse your needs and find the most cost-effective solution for your circumstances.
Review your insurance policies
The last few years have been tough for insurance companies. Poor investment markets and rising claims have squeezed their profitability. As many people have discovered, premiums on many types of policies have increased. Many insurance companies are now also tougher on claims assessment.
Each time you review your insurance, check your coverage and make sure you have told the insurer all of the information they need to know. The last thing you need when making a claim is to discover that you’re not covered or you didn’t fully disclose the facts.
- Does your income protection policy still reflect the income you are currently earning?
- Will your house insurance pay out enough to rebuild your house if it is destroyed?
- Will your life insurance pay off all your debts and be able to support your dependants if you can’t work?
- Has your car been modified in any way that could affect your policy?
- Have you recently installed security devices or extra locking systems on your home that could reduce your premium?
- Have you bought a $10,000 home theatre and forgotten to add it to your contents policy?
- Did you know that undertaking “high risk activities” such as skydiving or hang-gliding could void your life insurance policies?
This list is not complete but it’s enough to get you thinking. Is it time to arrange a review with us for a complete analysis of your insurance needs?
As the first Baby Boomers begin to hatch their retirement nest eggs, the industry is beginning to realise that the current retirement incomes product set is not sufficient. A huge volume of superannuation savings is held by the 5.5 million-strong Baby Boomer generation. Whether in a self-managed superannuation fund or not, the key question that is asked is by retirees is “how much money will I need for retirement?” One industry rule of thumb says retirees will need about 60 per cent of their pre-retirement income, minus major expenses such as mortgage payments or children’s education expenses, which are expected to have been discharged by the time the client retires. But this is an indicative figure, and some some planners and their clients prefer to be more precise — actually completing a retirement budget to fully understand their individual cash-flow requirements, and importantly, the pattern of these needs, which can be crucial when selecting retirement strategies and products.
As a single person you have the freedom to decide, which savings plans and investment vehicles are right for you. And, if you are living alone, as 33 million people in the US do, the best way to protect yourself financially is with insurance, according to the Insurance Information Institute. Life insurance is particularly important for the 13.6 million unmarried parents living with children to ensure their financial future, but even if you do not have dependents, life insurance can be an excellent way to pay your final expenses or leave a significant contribution to a charity you want to support. Disability coverage, sometimes known as income protection insurance, can replace lost income — usually 50 to 75 per cent of your normal wage — if you are unable to work as a result of an accident or illness. Health insurance is also a vital form of protection against sickness, which can strike at any time.
Planning for the future is an integral part of the life of an individual. It is the process of thinking about and organising the activities required to achieve a desired goal. As such, planning is a fundamental property of intelligent behaviour. Planning is very effective when all the outcomes in the future take place as contemplated. The problem arises when there is a deviation to those outcomes; for example, unexpected events like accident, illness or death. Such events have the potential to change the course of one’s life both emotionally and financially. While it is very difficult to safeguard against emotional distress, financial impact can be minimised through proper management of finances by the process of financial planning. Life insurance can provide a financial safeguard for dependents in the event of your death, while an income protection plan can allay some of the financial impact if you are unable to work because of illness or injury.
Despite being the key decision makers in their families’ financial arrangements, women in the UK are failing to safeguard their own incomes, according to a new study. Scottish Provident’s Women and Protection report found 57 per cent of women in full-time employment make most of the money decisions in their household — an increase from 47 per cent in 2011. Yet the report also found more than 10 million women working full time — a total of 84 per cent of working women — did not have an income insurance protection in the form of a critical illness policy that would pay out a lump sum should they become seriously ill or disabled and be unable to work. More than half of respondents who did not have a critical illness policy said they could not justify the expense, yet 28 per cent said they would consider cover if someone close to them was diagnosed with a serious illness.
The ACTU has indicated it might support an unemployment insurance scheme in which workers put aside a small part of their weekly wage. The union body said the possibility of an insurance scheme similar to those in Europe would be “worthy of discussion” if broad changes to the welfare system were being discussed. ACTU assistant secretary Tim Lyons said looking at unemployment income protection could be a key term of reference for a review of the welfare system. Mr Lyon said longer-term attempts to address structural adjustment pressures in the Australian economy needed to include an examination of how to match up access to retraining and industry support with unemployment insurance and other things, as part of a total package. An inquiry commissioned by the ACTU has recommended it investigate models for a comprehensive system of employment insurance. The inquiry panel said this would deliver a national system of income protection that could underwrite income security throughout people’s working lives.
New research shows many Australian small businesses are woefully underinsured. According to Cameron Research, there has been a slight improvement in the amount of cover that small Australian businesses have, but there is still a lot of work to be done. More than half of small business owners have no income protection, while 90 per cent have no business expense protection. The research showed there was some confusion surrounding the benefits of small business insurance. For example, many incorrectly thought three- or six-month waiting periods were the norm for income protection insurance. The research also revealed that the chronic underinsurance of female small-business operators continues, particularly in ‘husband and wife’ type businesses where the husband may be the primary income earner while the wife runs the office and administrative side of the business. Yet many small businesses would come to a screaming halt if their customer service and accounting functions were no longer performed.
There has been an increase in protection policies — such as income insurance and life insurance — sold in the UK over the past year, according to new data from the Financial Services Authority (FSA). Between April 2011 and March 2012, purchases of policies like critical illness cover and income protection rose 1.6 per cent. Much of the rise was attributed to a 5.8 per cent jump in sales in the first quarter of 2012. The FSA report claims the sales growth coincided with an increase in mortgage sales to first-time buyers. It said there is a “strong correlation between mortgage sales and protection products because a house purchase is often the motivator for taking out cover.” In 2011-12 there were 601,305 pure protection sales made in the UK, a rise of 2.9 per cent. A massive 80 per cent of these were critical illness policies sold as an add-on benefit to life insurance.
A leading life/risk insurance executive believes it is difficult to be specific about the extent of “churn” within the industry. Churn involves attempts by unscrupulous agents from insurance companies to cancel an existing policy and replace it with a new one, drawing down your cash value to pay for it. This activity generates additional commission for the agent and may result in your having to pay more down the line. Tim Browne, CommInsure’s General Manager — Retail Advice, told a Money Management roundtable involving senior executives from three life/risk companies that insurers would know what their average lapse rate might be, and be able to identify those advisers with a lapse rate higher than or beneath the average. But forming a view about whether those who had a lapse rate higher than the average were doing a better job by their clients — or a worse job — would require an examination of the relevant files.