Four key steps to protect your family (or one risky move to financially devastate them)

14 Aug 2013

By Darren Higgs

I love financial planning. You can actually assist people meeting their needs and goals. There is a personal satisfaction in seeing others live their life they want to. It is why I believe I have the best 'job' in the world.

My job is not enjoyable, however, when somebody cannot meet their goals due to something unforeseen or unfortunate happening, such as sickness, injury, suffering a critical illness / major trauma, being totally and permanently disabled, or passing away (touch wood). I feel terrible for the people it happens too. I feel terrible for their families.

I was going to open this blog with statistics and quotes on the importance of insuring yourself and your family against these events. However, I was afraid that Mark Twain would come back from the dead (after receiving his life insurance payout, of course) and hit me with the "lies, damned lies and statistics" quote. You do not need statistics to know that your family are important. You know this already.

In saying this, I believe a lot of people just do not know how to financially protect their family. But before we get to the 'how'. I need you to be aware of the issues and some possible solutions. The table below looks at questions you should be considering...as a family... for each of these events and the type of insurance you should consider for each situation. What would your answers be to the following?

Details

Adverse Event

 

Life

TPD

Trauma

Sickness / Accident

Would you sell your family home? How much would you get after selling costs? How much would your new home cost?

Covered

Covered



Would you sell any of your investments? How much would you receive after tax?

Covered

Covered

Covered

Covered

How much of your superannuation benefits would you get back after super tax?

Covered

Covered



How will you repay your debt? Would you need to repay all of your debt?

Covered

Covered

Covered


How much will your funeral and legal costs be?

Covered




How much would you allow for outstanding medical costs?

Covered

Covered

Covered

Covered

How much would you and your family spend each year, including holidays, home maintenance, renovations, motor vehicle upgrades, etc? How much you would spend if only one of you were still alive?

Covered

Covered

Covered

Covered

How much will your children's education and extracurricular activities cost?

Covered

Covered

Covered

Covered

Will you need a nanny / housekeeper to look after the children while the surviving partner is working? What will this cost until the kids are in high school?

Covered




What will the cost of a carer be for the rest of your partner's life?


Covered



What will the family's continuing income be? Will the 'other' partner go back to work? Is there an income replacement policy in place if one partner was totally and permanently disabled?


Covered

Covered

Covered

How much would you allow for accommodation costs for your family in case you need medical treatment interstate?


Covered

Covered


What lump sum amount would you need to cover the 'opportunity cost' of not being able to work for a period?



Covered


Will your employer provide sick leave?




Covered

Will you receive any Centrelink disability support pension?


Covered


Covered

Assume you receive a lump sum amount to cover all of the above contingencies, how would you invest these monies? What are the likely returns from this portfolio? How much tax would you pay? What are the portfolio costs?  You will need to factor all of this and make sure it lasts until at least age 85.

Covered

Covered

Covered


For most of us, our greatest asset is our income earning ability over our working life. If you add up your net salary and superannuation contributions from now until your retirement age, it is likely to be a large amount. This is the money you and your family were going to live off. This is why it needs to be protected.

How would you feel if you and your family were to suffer financial hardship for the rest of their life if one of these events happened? Is it fair to put all of the financial pressure on to loved ones when they themselves are also devastated? You have a choice. You can consider the four keys steps to protecting your family financially, being:

  1. Replace your income in the event of sickness or injury
  2. Receive a lump sum to cover you and your family in the event of a major trauma or critical illness
  3. Receive a lump sum to cover you and your family in the event of total and permanent disablement;
  4. Your family receives a lump sum in the event of your death; OR

Choose the one step of not protecting yourself and placing your family's welfare at risk if something were to happen to you or your income. I know that if I did not properly protect my family, I would need my life insurance policy if my wife ever found out!

Please discuss the above questions with your family. Your partner's responses may surprise you. What would they do if one of these events actually occurred? After answering the questions, do you think your family would be able to survive without your income?

I understand that answering all of the above questions is daunting. Therefore, as a once-off offer, I will provide you with an obligation-free assessment of what level of cover you need to protect your family. To qualify, forward me an email and quote this article. I will ask for some information to help work out the answers to the questions and then work out the level of cover you require. The offer is there, so now there is no excuse for not knowing how to protect your family.

To learn more about Darren, view his online profile.

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