1. Stay at home mums can be insured
If you don’t earn an income from a regular job, that doesn’t mean that you can’t have life insurance.
If you are raising children or maintaining your home, then you are an unpaid worker. However, if you were sick, injured or you pass away this would have a significant financial impact on your family as you would need to pay someone to help around the house, or your spouse would have to take an extended time off work to perform the duties that you do now.
To consider the amount of insurance that you need, calculate what it would cost for someone else to do the tasks that you currently do – childcare, cooking, cleaning, school pick-ups, ironing, washing. It adds up very quickly. In fact, it is estimated that if you were to pay for each task that an average homemaker currently performs by the hour, the total cost would be approximately $100,000 a year!
The most practical way to financially protect your family, is through insuring the homemaker. While the absence of an income via a ‘job’ takes income protection insurance out of the picture, there are other options;
- Life insurance to pay a lump sum of money upon the homemaker passing away.
- Total and permanent disability (TPD) insurance covers serious illnesses and injuries which permanently prevent the homemaker from performing their usual tasks. This is paid as a lump sum.
- Trauma (or critical illness) insurance will provide lump sum benefits, for a range of major conditions including cancer, stroke and heart attack, to help fund treatment, recovery and lifestyle adjustment.
Homemakers should consider having their financial value to their family insured in order to protect their family’s lifestyle and financial situation in the event of sickness, injury or death.
2. You can pay your insurance premiums from your super fund
There are plenty of reasons that you should consider paying your insurance premiums from your superannuation fund.
There are certain types of insurance policies that are more tax effective by having your insurance in a super fund as opposed to paying premiums from your regular bank account.
There are some insurance products that will let you hold and then pay for most of your coverage with your super fund, and for part of your coverage outside of the super fund. This is called ‘linking’.
3. Your insurance should be reviewed annually
Every year your needs will change.
You will have changing financial obligations, your debts will change, your children will get older or you may have more children.
Insurance can be a big expense, so you don’t need to pay for more than you need. You also don’t want to be underinsured if your family grows or your debt increases. Annually reassessing your levels of cover with your Financial Planner is a smart thing to do to protect your family.
4. Insurance protects you financially in the event or injury or illness
Whenever you insure yourself, you are insuring against the loss of the financial benefit that you provide your family, both the immediate benefit and the future benefit.
Below are different types of insurance that will cover you in certain issues.
- TPD or total and permanent disablement, will provide you with a lump sum if you are unable to work due to permanent disablement as a result of sickness or injury.
- Income protection will provide you with a monthly payment if you can’t work due to illness or injury – generally up to 75% of your income.
- Trauma or Critical Illness insurance will provide you with a lump sum of money if you suffer a certain medical condition and survive it – such as cancer, stroke or heart attack. It can help to cover living and recovery expenses, including medical treatment costs.
- Life insurance will pay a lump sum if you pass away in order to provide financial security to your family.
5. Your greatest asset is your ability to earn an income
Whenever you look at protecting what assets you already have, you will generally look at tangible assets such as your home and your superannuation.
Yet your biggest asset is your ability to earn an income week to week, year to year. Your income is not something that many people think to insure. The average Australian worker will earn between $2,000,000 and $4,000,000 in their lifetime, with some people earning significantly more.
Your income is what funds your mortgage, living expenses, your children’s education and holidays. If you get sick or aren’t able to work due to injury or illness, how will you be able to afford your lifestyle as well as your commitments?
6. Super funds don’t always provide you with enough insurance
Research commissioned by IFSA in 2005 showed parents with dependents were critically underinsured by $1.37 trillion. Thinking of that another way – only 4% of the total population with dependent children have adequate levels of Life Insurance cover.
Many Australians only have the minimum amount of insurance coverage as a default with their super fund. You need to know how much coverage you have, what type of cover you have, and what your needs are so you are able to consider if you need to tailor your cover appropriately.
Just having enough insurance in your super fund to cover your mortgage and any debts is often not nearly enough. There are many other immediate and ongoing living and medical expenses that need to be considered should you become sick, injured or you pass away.
7. Older people still need insurance
As people are living and working longer, there is a bigger need to ensure that your income is protected for longer. Often, your income and savings during the last 5-10 years of your working career helps set you up for a comfortable retirement. If this income was to stop, you will have to settle for a less comfortable lifestyle in retirement.
Many insurers offer coverage up to age 70. If you are approaching retirement, it would be smart to consider coverage that lasts longer.
8. Some personal insurance is tax deductible
Deciding if your insurance is tax deductible depends on your cover and if your cover is held within your super fund.
Generally, life insurance, TPD, and income protection are tax deductible for super funds. Income Protection premiums are tax deductible if held outside of super and paid via your after tax income.
If you are self-employed, you may also have the ability to qualify for a tax deduction by making a contribution to your super fund to pay your insurance premiums.
9. The odds of you getting sick or injured are too high to ignore
Unpredicted things can happen.
- 1 in 3 men and 1 in 4 women will have cancer before they turn 65. *
- Age 40 is the most dangerous age due to the likelihood of accidental death than any other age group. **
- 1 in 3 people will become disabled and not have an income for 3 months before they turn 65. ***
Assure Wealth is able to assist you to determine your personal insurance needs. CLICK HERE to book a time to speak with our Financial Planner.
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At Assure Wealth, we specialise in helping busy, successful families get their financial house in order, bring structure to their finances and achieve financial peace of mind. We have a particular focus on helping people to establish a self-managed superannuation fund (SMSF), plus self-managed superannuation property investment. Our SMSF service operates on a fee for service basis to offer complete transparency on costs.
Author: Pat Casey – Managing Director, Assure Wealth
• * Australian Institute of Health and Welfare
• ** Suncorp – Year of Living Dangerously Report
• *** *Based on data from the Institute of Actuaries of Australia 2000. Interim Report of the Disability Committee IA Aust: Sydney