So what happens if you're not bullet-proof?

24 Mar 2015

By Shadforth Financial Group

In our younger years, most of us are fit and healthy with little concern over our health and finances. I remember when I was at university my primary concern was balancing my studies and being able to afford a drink with mates on the weekend. It seems like the older we get the more expensive life seems to become with mortgages, bills and children.

We are taught from a young age to protect the things we treasure the most. As we grow up our favourite toy turns into a brand new car and we look to insure it and other material objects such as our house and its contents. However for most of us, we don't insure the one thing that pays for all of these...our income!

Common misconceptions about insurance in Australia

Unfortunately we tend to only think about insurance when we need it the most which is generally too late. So why do we put off safeguarding our ability to earn an income which in turn puts at risk the lifestyle we enjoy? Here are a couple of reasons:

Myth 1 – I'm too young to worry about insurance - Did you know a 25 year old earning $75,000 per annum can expect to earn just over $9m by the time they retire at age 65. The real question is what happens to your financial position if that income is cut off at 30, 35 or 40 due to you suffering an accident or sickness and are unable to work?

In 2012/13 Asteron Life, an insurer in Australia paid out just under 4,000 claims to individuals under 45. This equates to 30% of the total claims paid by the company in that year.

Myth 2 – My employer will look after me - Apart from paying you for your accrued sick and annual leave, an employer has no legal obligation to pay you if you're unable to work due to sickness or injury. Some employers may package benefits such as Total and Permanent Disablement and Income Protection as part of your salary however the majority of us only have insurance cover that is provided as part of our superannuation fund. This protection for most would barely cover the family mortgage.

Myth 3 – It's too expensive - Insurers in Australia allow you to 'lock' in premiums at a younger age. By securing cover in your younger years when you don't have pre-existing medical problems can save you thousands in premiums over the longer term.

What is available?

Apart from the basic life insurance cover, you should also consider 'living insurances.' These insurances pay whilst you're still alive and help cover your cost of living. These covers are known as:

  • Total and Permanent Disablement (TPD)
  • Trauma / Critical Illness
  • Income Protection / Salary Continuance

How much does it cost?

The first question asked by everyone is, "What is this going to cost me"? It differs for everyone however some of the key things that affect the premium are:

  • How much cover you require
  • Age
  • Smoking status
  • Occupation

The cost to you is much greater if you don't have enough cover in place and need to rely on government benefits. Did you know that the maximum disability support pension for a single is $776.70 per fortnight? This can be a big drop in your living standard, particularly if you are accustomed to a higher salary. Also if you're married and your partner continues to work you may not be entitled to this payment at all.

Being proactive will save you thousands in the future

There are many variables such as product wording, optional benefits and ownership structure that need to be considered to ensure you're in the best situation possible should anything unfortunate happen to you. When looking to setup insurance you should seek professional advice from a financial adviser.

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