Protect your most important asset
What is your most important asset?
At first, it may not seem obvious. You may believe it’s your house, investment property or cars. However, your most important asset is your health! Your health gives you the ability to earn a living. Your ability to earn a living and to improve the amount of money you can make will mean more for your financial success than almost anything else you do. For instance, how much do you earn a year? Now multiply that by the number of years until you plan to retire. Eg. a 40 year old currently earning $100,000, planning to retire at 65 has a future earnings potential of $3,415,000 (including 2.5% wage increase). To calculate your potential future earnings visit www.calcxml.com/do/ins07 (assume current wage increase at 2.5% for inflation)
The harsh reality
Imagine suddenly being unable to meet your financial obligations including mortgage payments, school fees and living expenses. Most people have insurance for their home and motor vehicle, but fail to cover their most valuable assets - their life and their ability to earn income over the long term. There’s a worrying trend in Australia when it comes to financially protecting ourselves, with 95% of Australian families not having enough insurance #2. Unfortunately, the prevailing attitude is ‘She’ll be right, mate”. However, the reality can be bleak.
Consider these facts:
1 in 3 Australians will experience an accident or illness that will keep them away from work for more than 3 months #3
It is estimated that 38% of working Australians would last less than a month without their regular income before needing to sell an asset #4
It is estimated that 20% of mortgage defaults are due to an accident or illness of a person in the household #5
In 2008, every day 34 families lost a working age member every day, and 52% of these involved children losing a parent. #11
96% of Australian families with dependent children don’t have enough life insurance. #10
33% of Australians don’t have total and permanent disability insurance.#12 People with disability are twice as likely to be in the bottom 20% of gross household incomes. #13 60% of Australian’s don’t have income protection.#12
The cost of raising two children at Government schools to year 12 and then 3 years of university is around $537,000 #9
But what about sick leave, worker’s compensation or Centrelink?
Sick leave is designed to cover only short term absences from work. Many Australians will only have a few days or weeks of sick leave available, and it is unlikely that anyone would have enough sick leave to cover the rest of their working life.
Some people may see Centrelink as their safety net, but the reality is that a disability pension will not meet the needs of most Australians. If you have a mortgage to pay and a family to support, you may find that a disability pension falls well short of your real income needs. You really don’t get much: www.humanservices.gov.au/customer/enablers/income-test-pensions
Worker’s compensation is another form of safety net, however this only covers incidents that are work related. If you suffer an illness or are injured away from work, you will not receive anything in the way of worker’s compensation.
What are the types of cover available?
Make sure you’re adequately protected against accident, illness and death.
• Life cover can provide financial security for you family in the event of your death, with a lump sum payment or instalments;
• Total and permanent disablement (TPD) cover could provide a tax-free lump sum or instalments if you were unable to work due to permanent illness or injury;
• Trauma protection could provide a lump sum or instalments to help maintain your family’s lifestyle if you were diagnosed with a critical illness; and
• Income protection insurance policies may cover up to 75% of your regular annual pre-tax income for a limited time (usually two or 5 years) if you are unable to work due to illness, accident or injury.
Think you can’t afford it?
Life insurance is not as expensive as you think. How much do you spend on coffee? How much do you spend on alcohol? How much do you spend on car and house insurance?
$3.62 is the Australian average price for a cup of coffee. If you were to buy just one cup of coffee every that adds up to $868.80 per year ($72.40 a month). #18
$8.40 per day is what the average Australian spends on alcohol. This equates to $3,066 per year on alcohol! #20
$2.02 is the average amount of credit card interest Australians are paying daily. The average Australian credit card holder is paying around $738.02 a year in interest if their interest rate is between 15-20% #15
$2.96 per day ($90 a month) is the average amount Australians pay for building insurance #16
$3 per day ($106 a month) is the average amount Australians pay for car insurance #17
$4.57 a day ($32 a week) is the average amount Australians spend eating out in restaurants#19
So how affordable is it?
$0.99 per day ($30 a month) would be the approximate premium for a 35 yr old male applying for $500,000 of Life cover #14
$0.82 per day ($20 a month) would be the approximate premium for a 35 yr old female, non-smoker applying for $500,000 of Life cover #14
Talk to Brad and the team about how to get the right cover for you and your family.
#2 Lifewise/NATSEM Underinsurance Report – Understand the social and economic cost of underinsurance February 2010 #3 TAL and FSC Under insurance key facts study 2009 #4 Zurich Misinsurance Whitepaper February 2014 #5 Mortgage default in Australia: nature, causes and social and economic impacts, Australian Housing and Urban Research Institute, March 2010 #6 A 2013 AMP / Natsem (National Centre for Economic Modelling) report showed that it costs about $452,000 in 2013 dollars to raise two children from birth to age 20. #8 RiceWarner Underinsurance in Australia 2015 Report pp15 #9 Lifewise Industry facts page (http://www.lifewise.org.au/facts-research) #10 Lifewise NATSEM Underinsurance (Summary) Report 2010 (http://www.lifewise.org.au/downloads/file/aboutthelifewisecampaign/2010_0203_LifewiseNATSEMSummaryA4FINAL.pdf) #11 Lifewise NATSEM Underinsurance Report 2010 pp5 #12 RiceWarner Underinsurance in Australia 2015 Report pp15 #13 Australian Network on Disability Stats and Facts (http://www.and.org.au/pages/disability-statistics.html) #14 Lifewise Industry facts page (http://www.lifewise.org.au/facts-research) #15 MoneySmart (https://www.moneysmart.gov.au/borrowing-and-credit/credit-cards/credit-card-debt-clock) #16 Canstar A Beginner’s Guide to Home & Contents Insurance (https://www.canstar.com.au/home-insurance/home-and-contents-insurance/a-beginners-guide-to-home-and-contents-insurance/) #17Canstar Are you paying above average for car insurance? (https://www.canstar.com.au/car-insurance/what-does-car-insurance-cost/) #18 The Coffee Economist – Cappuccino Price Index (http://www.coffee-prices.com/) #19Moneysmart What Do Australians Really Spend Their Money On? (https://www.moneysmart.gov.au/managing-your-money/budgeting/spending/australian-spending-habits) #20 Australian Bureau of Statistics 4307.0.55.001 (http://www.abs.gov.au/ausstats/abs@.nsf/mf/4307.0.55.001/)