Insurance Protection ….. What if ?
Wealth Protection is largely about covering yourself for emergencies, those ‘what if?’ situations. For example “What if you had an accident and couldn’t work for six months?” Protection involves being insured. Nobody likes paying for insurance. Nobody, that is, except those who have used it.
Sam & Mary case study:
I worked with a couple named Sam and Mary (not their real names). This is their story about needing insurance.
At age 52, Sam was happily operating his own business, until he suffered a series of small strokes. The strokes were not life threatening. They were, however, still quite debilitating. Sam was no longer able to operate his business. Mary was a 49-year old mother at home with two young children. She had had no real involvement with the business before Sam’s stokes, and was unable to take over. The business had to be sold – and quickly. Sam and Mary received approximately half of what they would have had this not been a fire sale situation. Most of what they did receive went to pay debt.
Sam and Mary were suddenly faced with the terrifying question: “How are we going to eat?”. Luckily, Sam and Mary had been clients of mine for a number of years. Together we had started an income protection insurance plan. Sam instantly received 75% of his pre-stroke income. However, this was still not enough for them to live on. At the time of organising his plan, Sam chose not to insure himself for more. He was healthy then and assumed he would continue to be healthy. He decided to take the risk that he would not become disabled. Sadly, it was not a good gamble on Sam’s part.
Fortunately, we also were able to organise a trauma payout of $350,000 under the stroke conditions of his plan. This managed to give Sam and Mary some additional income to live on. The extra $350,000 meant that the kid’s schooling would be covered and that all of their debt would be paid off. Still, Sam and Mary would have to tighten their belts and no longer live the way they were used to.
Sam will never be able to go back to his original occupation. As such, he was able to get a Total and Permanent Disability payout. This meant another $670,000, which would make their lives a great deal more comfortable.
No one knows, least of all Sam and Mary, how long they will have to live on the funds they have now received. With no hope of earning more income, the couple greatly wishes that they had taken out more insurance coverage.
Here are the types on insurance available:
• Trauma Insurance
For someone who has a family history of heart attacks, cancer or strokes, trauma insurance may be important. This is because of the increased likelihood that one or all of these could happen to you.
• Total & Permanent Disability Insurance
Total & Permanent Disability Insurance, gives you a lump sum payment equal to the amount that your business would have generated.
• Income Protection
Every person should have income protection. Just look at these statistics:
– 1.1 million Australians are disabled long-term by heart, stroke and vascular
– 1 in 3 men and 1 in 4 women will have a cancer in the first 75 years of their life2
– More than half the Australian population suffer from a long-term or lasting medical condition3
It makes sense to have your income covered, especially as the premium for this coverage is tax deductible.
1. Heart, Stroke and Vascular Diseases – Australian Facts 2004. Australian Institute of Health and Welfare and National Heart Foundation of Australia, 2004.
2. Cancer in Australia 2001 – Australian Institute of Health and Welfare and Australasian Association of Cancer Registries, 2004.
3. AMP.NATSEM – Income and Wealth Report – 2003.
Which of these are important to you?
It depends on your age and at what stage of life you are. If you have young children, then you may want to ensure they are supported and schooled. You may also want to make plans for your spouse, pay off the mortgage, provide for the loss of your income, etc.
Three Insurance Tips:
1. Take out income insurance
Our income is our most important asset. We should all have income protection covered. If you are earning $20,000 a year and you are 20 years old, even without a salary increase, you will earn approximately $2,500,000.00 over your employed lifetime. It makes sense and is very important to protect an asset of that large an amount.
2. If money is tight…
…cover the most important thing first and then take other insurance later on. Your income is your largest asset. You should protect it before all else.
3. Decide where you are going to hold your protection
Is it in super? Or in your own name? Beware of holding protection in your work policy. If you leave your job, you may have to forgo the policy, leaving you unprotected in the event of a health crisis.