Insurance for the generations

12 May 2017

By Shadforth Financial Group

Imagine you’re comfortably retired with substantial retirement savings, travelling the world and enjoying downtime after working hard all your life. How would you react if one of your children called and told you they had been diagnosed with a serious illness?

While you’d clearly be emotionally distressed, you’d also likely have considerable financial concerns for your child’s wellbeing. Would you help them by sacrificing some of your own retirement savings or leave them to work it out for themselves?

Adult children and financial support

Parents often help their adult children financially. Whether it be education costs, childcare for their grandchildren or providing a deposit for a house. It’s the pleasure that comes from helping our children and grandchildren that ultimately drives this financial assistance.

So, for many, when faced with the decision to help their child financially — especially when sick or injured — it’s a sacrifice they wouldn’t dream of avoiding. Unfortunately, this could affect their retirement plans.

Case study

David is fit and healthy, married with two young children. His wife, Michelle, works part-time as a personal assistant and spends the rest of her available time with their children. David works hard to reduce their $400,000 mortgage and the rest of his income goes to supporting his family’s living expenses.

Recently he changed jobs and transferred his super, which was less than $50,000, to a new super fund. With the change of super fund, he was no longer covered for income protection insurance. A couple of months into his new job he was diagnosed with motor neurone disease which made it difficult for David to continue working.

With no income protection or other personal insurance policies in place, David’s wife had to return to work full-time and put their children into childcare. David’s retired parents helped out by funding a carer for David and partially funding their grandchildren’s childcare costs.

So how can you protect your children and your retirement?

The first thing to do is check that your children have personal insurance. While it’s confronting to raise in conversation, it’s also vital, for them and you, that they have insurance in place.

The second consideration is how to fund the insurance premiums. Your children may find that with large cash flow constraints, taking out personal insurance is not a priority, particularly when the cost of premiums may seem out of reach. However, this is not necessarily the case.

As Kunaal Parbhoo, a personal insurance specialist in our Victorian office says, “the perceived prohibitive affordability of personal insurance is, in many cases, a misconception. The cost of Life and Total and Permanent Disability insurance can be paid from your super balance, and in the case of income protection, the tax deductible nature of the premiums can substantially reduce the net cost to you.”

Thirdly, you may want to consider either fully or partially paying your child’s insurance premiums. It need not impose a significant burden on your cash flow but, if the worst occurs, it could provide the money to repay debt, cover the cost of childcare or other expenses. And, it provides financial security for your child and their family, while also providing you with the same feeling of financial reassurance.

Talking about death, injury or critical illness with your loved ones is difficult but the potential consequences of not having the conversation, and not being protected, is far worse.

Ensure you get to enjoy your retirement years without worrying. Talk to your Private Client Adviser about insurance for you and your loved ones.

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