Insurances are always an important part of any good wealth creation plan or strategy but they become even more important when you have children. For the purposes of this short blog we are referring to personal insurances, these include; life insurance, total and permanent disablement, trauma and income protection. These insurances are there to protect you and your family financially if something was to happen such as you passing away prematurely or if you were unable to work due to injury or illness.
The simple answer is you now have someone else dependant upon you. Not only are children dependant upon you because of the things that you do for them but they are completely financially dependant upon you to provide for them as well. No longer are you in the position of only having to think about yourself. In the past if you would have passed away prematurely there may not have been any impact financially to anyone else but now you would be leaving someone behind who has no means to financially provide for themselves.
Life insurance should be there to provide for your child and family if you are gone. You not only need to make sure that you have a good life insurance policy in place but also that you have an appropriate amount in place. In order to determine how much cover you will need, you should go through an exercise called a needs analysis to determine an appropriate amount of cover. Money Smart has a good one to calculate life insurance needs here – https://moneysmart.gov.au/how-life-insurance-works/life-insurance-calculator.
Other than life insurance there is trauma and total and permanent disablement are there to help with some mortgage relief and also have funds available for out of pocket medical expenses and are important because events like that have the potential to financially derail a family. The other very important type of insurance when you have a family is income protection. That is there to provide usually 75% of your income if you’re unable to work due to illness or injury.
Pretty much everything in your life works and functions due to your ability to earn and generate an income, therefore it becomes important that we insure your family’s most important asset, which is you! A lot of people will often insure their car which may be worth $30,000 or so but won’t insure themselves. If you need your income to survive and afford your lifestyle, then you need income protection, it really is as simple as that.
This is a common concern for people who have just had children as no doubts your general living costs have increased, the main point I often make when this is the case is imagine how tight things would be if you were to lose your income. If things really are that tight, a lot of insurances can be held inside super and whilst they might not be as good as an individually owned policy in the case of income protection, it is still much better than not having any protection in place.
Whilst it’s important to understand that superannuation is still your money and using those funds to pay for your insurances can impact upon your retirement goals, having appropriate protection currently in place is so important that it is often worthwhile doing as the alternative can often be disastrous for your financial situation. We can also always catch up with extra contributions to your super later in life.
If you are really against using your super funds to pay for your insurances and cashflow is tight then it might be time to look at your household budget and check the priority of where your money is going because this is important.
There are many ways you can put insurances in place, you can go and sit down with a financial planner or insurance broker who will be able to help guide you through the process. I may be a little biased but this is the best way to go about getting insurances in place, a good broker or advisor will be able to guide you through the process, make sure you have appropriate amounts and also choose the right insurer for you based on your needs and wants from there list of insurers available to them.
Like most things, you can also go online and do your own research but beware when going online as there are a lot of sub standard insurers out there and whilst their prices may be attractive, the main reason for putting these insurances in place is to get you paid if an event was to happen, so make sure you are checking their reputation. If you are wanting cover inside your superannuation, you can give your provider a call and they should be able to help you out as well.
I understand that not many people like paying for insurances but it is the grown up medicine we have to take when we are bringing another person into the world. If you need your income to live or your family relies on your ability to generate an income, then it is highly likely that you need to put some insurances in place.
Zac is a qualified financial planner at Pekada and host of the Wealth Collective Podcast. Living in Melbourne, Zac has six years of experience in advice and specialises in wealth accumulation and protection strategies. He loves to keep his finger on the pulse for the best strategies for wealth accumulators looking to build and protect their wealth tax effectively. Zac has been featured as an expert in Money Magazine.