Australia is one of the most underinsured nations in the developed world ranking. Underinsurance is where the amount of insurance that you have is not enough to pay for you or your family’s immediate needs, when the event you are insured for occurs. While most people (83%) would never consider driving a car without motor insurance, less than a third of us insure our most important asset – our ability to earn an income. We are critically underinsured in the areas of income protection, life cover and TPD cover.
When saving for the future, many people focus mainly on investing and growing the money they have. That’s important because you will likely have some big expenses in life: your children's education, a home, maybe a wedding someday and, of course, retirement. But when you focus only on saving for your future, you’re missing a big part of financial planning: protection. The majority of people are under insured, many don’t have any disability income or life insurance while others don’t have adequate coverage.
There are a variety of reasons, but the most common tend to be that they falsely believe they don’t need disability income or life insurance, that they are fully covered by their employers or that they can’t afford it.
Another reason is that we’re taught that investing and saving for your future is just something you do. But, unfortunately, we aren’t taught that about buying life or disability income insurance to protect our families and we should be—because it’s just as important.
Protecting your family and lifestyle Your life as a family has started and there are many changes occurring compared to when you were young and independent; the most obvious being more responsibility.
You don’t just have yourself to look after, but there’s now also a spouse or partner and children. Your focus and priorities are now different, and you should start thinking about and planning for the future.
It’s now that you’ll really start to see the benefit of having insurance as part of your financial plans. If you currently hold an insurance policy, now is the perfect time to review it.
Those with young families often have less of their mortgages paid off and have fewer assets than people who are older, so their death could devastate their family financially.
Insurance can provide peace of mind Most young people want to protect their families but believe that both life and disability income insurance are too expensive and won’t fit into their budget - that isn’t the case. That’s a huge misconception, there are a number of different types of plans and options available that make insurance affordable on any budget.
The most expensive insurance to own is having no insurance. If people have no insurance and something happens to them, their loved ones are responsible for all the financial responsibility and obligations that occur afterward. You may need to make small financial trade-offs to purchase insurance, but by making these small sacrifices your plan to grow your wealth is protected. There are a lot of things you can’t control, but the one thing you can control is that you can protect yourself and your family in case you get sick, injured or die.
Do you have enough protection? Consider your lifestyle now, and what you could lose if something unexpected were to happen to you in the future and you didn’t have enough insurance.
With no way to pay, what would happen to: • saving for your home deposit • your mortgage or rent • credit card and loan repayments • mobile, car, electricity and gas bills • the quality of your child’s education?
So how much is enough? It’s a tricky question. You don’t want to over insure, but you want to make sure you can get back on track with your health, and take care of your loved ones.
Reviewing your insurance, every so often, with your financial adviser will keep it up-to-date with your changing needs.
Brad Tuppack is an Authorised Representative (AR# 461168) of Crown Wealth Group (AFSL 494274)
Trading as Key Financial Advisers Pty Ltd ATF Key Financial Advisers Trust (ABN: 43 843 934 542)
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