A large part of the financial planning process looks at how you can achieve your goals and objectives. However the financial planning process also looks at the things that could go wrong and stop you and your family from achieving your goals. Over the coming weeks we’ll focus on the area of insurance and give you a better understanding of how it fits into the financial planning process.
Life Insurance
Life insurance provides a lump sum on death or diagnosis of a terminal illness of the life insured. It is paid to the policy owner who can be a spouse, a family trust, a company and of course the insured in which case it will be paid to his / her estate.
Often with life insurance you can also add optional total and permanent disability (TPD) cover in the event that you are not able to work again due to illness or injury. You can also add Trauma insurance that pays a benefit if you are diagnosed with one of a number of trauma conditions such as cancer, stroke, severe burns, heart attack – none of which need be terminal.
How Much Life Insurance Cover Do You Need?
There can be many elements to working out how much life insurance you may need, depending on personal circumstances, but some major factors to consider are:
- How much would it cost to clear all debt (mortgages, personal loans, credit cards etc)?
- What future costs do you anticipate (children’s school or university fees, retirement funds)?
- What amount of capital would your family need to have enough money to reasonable maintain the lifestyle and for how long?
Where Is Your Life Insurance Cover?
Many people have a basic level of life insurance through their superannuation fund. In some cases this can be a cost-effective way to hold the cover, as the premiums are funded via your account balance. For clients where it is difficult to pay for premiums out of their cashflow, this can be an appropriate way to ensure they have sufficient cover.
Do You Have Enough Cover?
In a previous article we wrote about the Lifewise initiative – an initiative of the Investment and Financial Services Association (IFSA). Their statistics show that Australian families received an average payout of just $91,000 on the death of a partner in 2008. Given the average family with young children has debts totalling $167,000, these levels of cover will not protect the majority of Australians from financial difficulty following this type of tragedy.” (1)
Clearly, the average Australian has insufficient insurance to provide even a basic level of cover for their family.
In the financial planning process we help clients determine the appropriate level of cover for their circumstances. Someone younger, with large debts and a young family may need more cover than someone in their 50′s who has no dependent children and is saving for retirement. A retiree may not need any cover – it depends on their personal situation.
Like most aspects of financial planning – there’s no one-size-fits-all approach.
Action Steps
- Find out how much insurance cover you actually hold.
- Have a think about what you want the cover to do for your family in the event of your death.
- Contact us on 08 8364 0066 and make a time to meet with us to review your insurance needs.
We’ve had a number of review appointments recently where we’ve been able to help our clients restructure their insurance to ensure they have the appropriate amount of cover structured in the most cost-effective manner.
Impact Financial Coaching is a financial planning business in Adelaide, South Australia.
Important information
This article contains financial product advice of a general nature only and is not intended to constitute personal advice. It does not take into account your particular investment objectives, financial situation or needs. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in the publication.
Financial Wisdom Advisers are Authorised Representatives of Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124.
(1) ABS, Australian Social Trends, Household Debt, cat. no. 4102.0, 2009
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