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The uncomfortable “what if” questions

To protect your family, ask yourself the uncomfortable “what if” questions.

According to research by insurer, MLC, for every home lost through fire, 3 are lost through death and 48 are lost through disablement.

These are alarming statistics, yet many Australians remain woefully underinsured for personal risks; such as death, as well as permanent and temporary health events preventing them from working. This costs our economy billions of dollars each year.

Personal risk management is a key component of everyone’s financial affairs. It is a complicated area and you should seek expert advice from an independent professional, however, the following summarises some of the key principals:

  • Your future income is your biggest asset, so before you insure your boat, car or even your house, insure yourself. Even for people on modest incomes, you may need to invest an insurance lump sum of over $1million to replace your future income if you die or are permanently disabled.
  • Many people think “it” will never happen to them. Google the statistics. Odds are “it” will before you retire. More importantly, think about the downside for your family if “it” does and you are not covered.
  • Ask yourself the ‘What if’ questions:

           “What if something happens to my partner’s health and he/she:

a) dies;

b) can’t work for 6 months;

c) can’t work ever again;

d) needs emergency surgery, how would the family cope financially?”

Make sure your partner does the same.

  • There are four types of personal risk insurance: life, total permanent disability, income protection and trauma cover. Each is designed to help you address these ‘What if’ questions. Getting the balance right requires a technical understanding of each and your personal circumstances and risk tolerance. This is your adviser’s job.
  • Like most things, with insurance you get what you pay for. If it’s cheap, there’s a reason: it doesn’t cover as much.
  • The insurance cover provided with most industry superannuation funds is rarely adequate for a family with children and debt.
  • If you have existing insurance, think carefully before switching to a new insurer. If you have suffered health problems or changed your lifestyle, the new insurer may not provide the same breadth of cover as your existing one.
  • Always pay your premiums on time and never cancel a policy before a replacement has issued.