Understanding the benefits of insurance
According to research[1] commissioned by the Investment and Financial Services Association Limited (IFSA), only 4% of Australian families with dependent children have enough insurance cover. This means that in the event of an accident, more than 95% of families are likely to face financial hardship if the primary breadwinner is unable to work.
Why is insurance important?
Insurance is a key part of your financial planning strategy because it helps to protect your most important assets - like your family. With the right insurance policy, you are in a much better position to cope with any potential financial disruption in the event something happens to you. It lets you focus on getting well without additional emotional stress. An insurance policy ensures your family won’t have to struggle to pay every day bills and service large debts, like a mortgage or personal loan. If you have children, it will also allow you to continue to pay school fees and all the little extra costs associated with raising children.
What type of policy should I get?
There is a range of different insurance policies to suit your needs. These can include:
- Income protection provides a replacement income of up to 75% of your current income if you are unable to work due to illness or injury. It helps you to meet day-to-day living expenses like groceries and utilities.
- Trauma insurance pays a specified lump sum to your dependants if you suffer a serious illness or injury. It enables you to reduce your working hours, spend time with your family, get treatment or rehabilitation and pay for a carer if you need one.
- Life insurance pays a lump sum on your death or the diagnosis of a terminal illness or if you become totally and permanently disabled. This means your family will be able to pay off the mortgage or other debts and their lifestyle will be protected.
Is insurance expensive?
Contrary to some common beliefs, insurance is actually very affordable. For example, the life insurance premium for a 35-year-old, non-smoking male who wants $500,000 worth of life insurance coverage would be approximately $31 a month. And, the premium for a 35-year-old, non-smoking female, who wants $500,000 worth of life insurance coverage would be approximately $26 a month. Using these calculations, this means that the cost of protecting your family is less than a dollar a day!
Are you or your family under insured?
Even if you already have insurance, your life can change very quickly so that’s why your insurance policies need to be regularly reviewed. Once your circumstances change, it’s essential that your level of cover is reassessed so that everything important to you is protected.
Some common situations where people forget to adjust their policies include when they buy a bigger house, have more children, increase their mortgage or start a new job. Reviewing your insurance can take as little as 30 minutes which is a small investment to ensure that you and your family have financial security.
To find out what type and level of insurance protection is right for you and your family, contact your AMP financial planner today.
Will a government disability pension cover your lifestyle?
Many people don’t realise that a government disability pension is often not enough to provide you with financial security in the event of something unexpected happening. Centrelink will pay a maximum disability pension of $644.20 per fortnight for singles and $485.60 (each) for couples[2]. Would this be enough to cover your current lifestyle?
If you have any questions on this article or would like more information, please contact us.
[1] The Lifewise / NATSEM Underinsurance Report, 2010
[2] Rate exclude Pension Supplement and are effective from 20 March 2010.
What you need to know
This article contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances. Although the information in this article was obtained from sources considered to be reliable, the information is not guaranteed to be accurate or complete. The information in this article is current as at June 2009 and may change over time.
