PROTECTING THE FAMILY
A Short Guide To Personal Risk Protection
We all like to think our family finances are rock solid, but there’s every chance our family finances are more precarious than we think.
It’s all well and good when the breadwinners are healthy and working, but if something unfortunate were to happen, an incapacitating illness or even death, the outlook for yourself or your loved ones or those around you can change instantly.
That is why financial risk advisers put such an emphasis on a variety of risk insurance products to protect individuals and families to ensure the well-being of those affected. The outcome the insurance policy brings is the most critical concern and needs to be held in great prominence when choosing what insurance is required and how much money is to be invested in each policy.
There are a range of risk insurance products that play different roles in the process of financial protection, and they can be used in different ways, these can be quite sophisticated if required or can be very simple instead. It’s very important that a good financial adviser is located to assess your needs and to give you the professional risk insurance advice you deserve.
A good financial planning expert or risk insurance specialist, as they’re called, can calibrate what you need fairly well, but as always it is not as simple as finding the perfect insurance covers at any cost, there needs to be a budget placed around the most important insurance that you need and perhaps there are other insurance products that are not so important and maybe these would need to be sacrificed for a later date.
The typical starting point is to consider:-
- what health you and your family are in
- what debt the household has
- what major economic events you’ve had in your life or your family members
- taken out a new mortgage
- have regular ongoing bills that are significant
- own your own business
- have income which is variable or at risk if you are unwell, may even stop if you hurt yourself
Life Risk Insurance
Anybody with dependents or an outstanding mortgage should look at taking out a life risk policy, at the very least use it to cover debts and ensure the family can keep their home, and preferably provide an additional sum to help cushion the shock to your family finances at such a difficult time.
“ We consider the benefits that may be payable from superannuation insurance policies and take these as a starting point, and then it’s a matter of looking to see what additional insurance cover may be needed to cover any gaps and to reach a potential target that is required.” Andrew North – Financial Planner.
Income Protection Insurance
There are various policies to protect your finances in the event of sickness or disablement preventing you from earning a living. Some policies provide a lump sum amount and others provide a replacement of income. These can be tailored to hopefully meet individual clients circumstances with such things as waiting periods commonly used to reduce costs.
“ The last thing you want to be faced with during a serious health event is to increase stress levels caused by worrying about money. That’s why it is important to have adequate protection to keep the money coming in.” Andrew North – Financial Planner.
The types of protection that can be obtained fall broadly into two different types. Income protection insurance pays out if you are unable to work due to injury or illness. It pays a proportion of your salary, usually up to a maximum of 75%, so if you are really living up to your means then you may have to live on savings or take a cut in your lifestyle after the policy begins to pay out.
One aspect to consider with this type of policy is that commonly insurance premiums are tax deductible, on the other hand the payouts received by the policy are taxable. These are all worthwhile considerations at the point of purchasing such a policy. But never forget if you need the policy benefits because of a medical event these may not be your primary concerns at the time you’re receiving the benefit. In any regards an individual receiving this benefit will still be entitled to a tax-free threshold.
Payouts can be designed to continue until retirement, death or your return to work. Income protection policies only begin to pay out once the agreed waiting period has elapsed. This waiting period is chosen at the beginning of the policy using a criteria the client will have to understand and agree with. These policies have a choice as to what type of occupation you will be assessed upon.
There is the “any occupation”, or there is the “own occupation”. Essentially this means that some policies will not pay out if your health condition allows you to do “any work”, while other policies will pay out if your condition prevents you from returning to your “old profession”. Clearly it is preferable to have a policy that will pay out if you cannot do your own job, otherwise you may be refused a payout even if you can only do menial work such as cleaning.
The cost of an own occupation policy is more than an any occupation policy. Commonly a policy held within your superannuation fund must, by law, be any occupation.
Assessing how much you need to insure yourself for will be a calculation best carried out with a professional financial planner who can help add up the benefits of other policies match them to potential outgoings that may not spring immediately to mind.
Critical Illness Or Trauma Insurance Policies
These policies pay out a lump sum on diagnosis of a range of critical conditions within the term of the policy, typically including heart attacks, stroke, certain types of cancer and other conditions such as multiple sclerosis, that each policy will have its own list of covered conditions.
The amount of cover required can be quite difficult to establish considering each individuals’ circumstances and what would be a priority in the event they had a certain type of medical problem. One approach could be to attempt to cover mortgage payments and living expenses while you’re not working as well as medical expenses not covered by a private health insurance policy. Whatever is required to maintain your living and your family whilst you are incapacitated and hopefully on the way back to gainful employment or work.
“ It is incredibly difficult for a client to consider everything that they will need to pay for in the future if such a life changing event occurs, at least with a professional financial planner it is something that we can work on together and hopefully come up with something which is suitable ” Andrew North – Financial Planner.
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