Most people do not want to talk about Life Insurance because they either:
- Don’t understand it
- Can’t afford it, or
- Believe nothing will happen to them
I don’t understand it
Simply put, insurance is money that is available at a time when a serious event happens to you. In the case of Life Insurance, this is when you die or suffer a serious disablement.
Life Companies have products that supply money when the above events occur. They are:
- Life Insurance to provide cash if you die to pay debts and provide an ongoing income for the family.
- Total Disablement to provide lump sum cash if you become permanently disabled to pay debts, provide an ongoing income for your family, pay for medical costs and pay for any modifications required for your home.
- Critical Illness or Trauma cover provides a lump sum in the event of diagnosis of certain events to be used similarly to Total Disablement. These events are disablements that may not be of a permanent disabling nature but are serious. E.g. Heart Attack, Cancer, Stroke, Paraplegia, etc.
- Income Protection typically replaces up to 75% of your income lost when you become disabled and cannot work due to illness, injury or accident. Income Protection protects your biggest asset, your ability to earn a future income.
I can’t afford it
Priotise the importance of your assets. For example:
- You would not consider buying a car without insuring it. But a car does not appreciate in value and it costs considerable amounts to insure.
- You would not consider buying your house without insuring it in case it burns down. But for every house lost through fire, 48 are lost because the breadwinner lost his/her income.
- If you had an asset worth $2.68M would you insure it? This is the potential earning value of an income of $100,000 pa with a projected working life of 20 years (Indexed at 3% pa).
The real question is if you did not have this income, would you be able to buy the car or the house?
It won’t happen to me
- Each week in Australia more than 1,000 people have Heart Attacks and more than 1,000 people have Strokes1,
- The risk of being diagnosed with cancer before the age of 75, is 1 in 3 for males and 1 in 4 for females.2
If you use insurance, you transfer the risk to a Life Company for a premium. If you do not, the risks are the same and all you are doing is self-insuring which means that your saleable assets and savings will provide the cash you need.
At FWO Chartered Accountants, we offer a review service to assess the health of your protection plans. Please call us for an obligation free review.
1Heart Foundation Australia 2Australian Institute of Health and Welfare