How would your family survive financially if you weren’t around or able to work? While no–one likes to think about being unable to take care of their loved ones, it’s important to plan for all eventualities. Securing your family’s financial future, no matter what happens, is essential. Here’s how to start.
1. Get assurance through insurance
A recent Lifewise/NATSEM Underinsurance Report, revealed that 95 per cent of families aren’t adequately insured, which means if the breadwinner becomes ill or dies, they can be left to rely on government assistance. Making sure you are adequately insured is one of the smartest ways to provide for your family. Insurance doesn’t just give peace of mind: Appropriate life cover can protect your family’s financial security, giving them one less thing to worry about at a difficult time.
2. Do it sooner rather than later
Insurance isn’t just for people who have partners and children. If you are young, fit and single, insurance can pay for your care if you are injured, in an accident or become seriously ill.
Taking out life insurance when you are younger can also make good financial sense. Policy costs increase as you get older, so it might be possible to lock in more affordable rates when you’re young and healthy.
Plus, if you take a policy out when you are strong and in good health, it has to remain in place even if you become seriously ill and difficult to insure. So, unless you are wealthy and have the means to cover your family’s financial needs if you aren’t there, it makes sense to be adequately insured.
3. Unpick the policies
Understanding the different types of insurance, and which ones are right for your circumstances, is a great starting point:
Life Cover: Pays beneficiaries an agreed amount of money if the insured person dies.
Total and Permanent Disability cover or TPD: Helps pay the costs associated with care and debt repayments if you are permanently injured.
Trauma cover: Helps with the cost of treatment for a long–term illness or injury.
Income protection: Provides money to replace income if you can’t work because of an injury or illness.
4. Count the cost
Now you know the different types, there are two things to consider when working out the level of cover you should take out:
a. How much can you afford?
There’s no point in getting into financial difficulties trying to pay high premiums. Work out your budget and how much you can divert into insurance. If you need help, contact your financial adviser.
b. How much money will you or your family need if you end up having to make an insurance claim?
List your crucial bills and financial commitments to give you an idea of how much your family will need to live comfortably. For example:
5. Tick the legal boxes
Finally, if your insurance policy has to be used, it’s important to smooth the process by making sure you have a current Will.
While you can use a lawyer to draw up your Will, the Public Trustee in each state also provides a Wills service. Fees vary from being free in Queensland to being based on a sliding scale depending on the capital of your estate in NSW.
The Public Trustee can also help you with arranging power of attorney, which can be just as important as having a current Will.
Power of Attorney means you give an attorney the legal authority to look after your financial affairs on your behalf if you are no longer able to do so, for example, if you are too ill or injured to make decisions. It means someone can still access your funds and activate your insurance policies to make sure money is released to provide for you and your family.
Basic cover – the facts
Industry research shows Australia, as a nation, is one of the most underinsured countries in the developed world, with 50 per cent of respondents underinsured by $100,000 for life insurance.
A Rice Warner Actuaries report shows life insurance cover within super is only 20 per cent of what’s needed, on average.
Only 4 per cent of families in Australia with dependents have adequate cover, according to research commissioned by the Financial Services Council (IFSA) in 2005
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