Do you need Life Insurance?

John Simpson was a fit and active 45-year-old who drowned while swimming in surf on a family holiday. Witnessing this tragic event unfold from the beach were John’s wife, Joanne, their 15-year-old daughter Sophie and 12-year-old son Zac.

Relatives and friends were a great support during the following days, but soon after the funeral, and still in a state of profound grief, Joanne had to assess the state of the family finances. Until that time she wasn’t aware that the Simpsons were amongst the 95% of Australian families that did not have adequate levels of life insurance.

Is it common for parents of dependents to die?

Joanne, Sophie and Zac are far from alone. Over 9,000 Australian men and women in the prime parenting age bracket of 25 to 50 die each year. All up, one in five families will experience either the death of a parent, or a parent will suffer a serious accident or illness that prevents them from working. It is not unusual for families in these situations to lose half or more of their incomes.

But these cold numbers fail to convey the more profound impacts that the loss of a parent has on a family.

At first glance, the Simpsons were doing well financially. A few years earlier John had been promoted to an executive role earning him a high salary. This had allowed the family to move into a lovely new home close to the private school Sophie and Zac attended. Joanne ran the kids’ taxi service and worked part time, putting her income towards the annual family holiday fund.

John and Joanne were the first to admit that they enjoyed a wonderful lifestyle. However, underpinning that lifestyle was a large mortgage with repayments that soaked up a significant portion of John’s income, and his untimely death was to have far-reaching consequences.

‘But I have life insurance and super, so I’m sorted…’

John was not without financial resources. He had accumulated over $300,000 in superannuation and, through his super fund, had $250,000 in life insurance. However, as is the case in many Australian families, a combination of lack of qualifications, experience and time out of the workforce meant that Joanne’s earning capacity was a fraction of John’s. With an outstanding mortgage of over a million dollars it was clear to Joanne that even if she applied all of John’s superannuation and insurance to reducing the mortgage, and working full time, she would still be unable to meet the mortgage repayments.

Ongoing private school fees would also be well beyond her reach. This presented Joanne with a traumatising but unavoidable conclusion: she would have to sell their home, move to a more affordable suburb, get a full-time job, and enrol Sophie and Zac into a public school.

With no professional guidance, and not thinking clearly under the enormous stress, Joanne took the first offer on their home and sold well below what the property was worth. Her sole focus was to get rid of the mortgage.

The human consequences

It would be easy to say that this was the end of the story. Yes, the family suffered a significant drop in living standards and the children missed out on a number of experiences they would otherwise have enjoyed, but Joanne, Sophie and Zac were not left destitute. Joanne managed to put a reasonably secure roof over their heads, and the kids continued with their education, albeit at a different school.

However, the crucial part of the story lies in the emotional impact of the loss of a parent.

Sophie was in the middle year of high school when her dad died. The shift to a new school at a critical point in her education left her with clinical depression. This is a shockingly common problem, afflicting nearly 70% of children who need to change schools for financial reasons. And while Zac avoided the devastating effects of depression, despite Joanne’s best efforts to give him a normal life, he felt he had to grow up fast to fill his father’s shoes.

John’s death also had a financial impact on his parents. Despite being age pensioners, they did their best to help Joanne provide some extras for Sophie and Zac. And with John being an only child, his parents would miss out on the support he had planned to provide as their need for care increased.

Why were they unprepared?

While the cost of life insurance is the most common reason people give for not taking out adequate cover, John’s failure to protect his family was due to a combination of factors.

Feeling fit and healthy, he expected to live a long life. This is despite accidents and suicide being the most common causes of death during the key parenting years. And while he didn’t entirely view life insurance as unimportant, with a demanding career it simply wasn’t something John thought too much about.

How can you prevent this from happening?

Partnering up. Taking out a mortgage. Having children. Each of these events should have sparked a little voice in John and Joanne’s heads saying: “take out life insurances”. And with each major change in their situation, that little voice should have piped up: “review your life insurances”.

Why? Well, the obvious answer is that this would have allowed John to leave the family with enough money to pay off the mortgage, cover school fees through to the end of high school and to provide a regular income to meet ongoing living costs.

But the real answer is that it would have dramatically reduced the risk of Sophie’s depression, eased Zac’s sense of obligation to grow up quickly, and relieved Joanne of an enormous burden. It would have helped maintain both Joanne’s and the children’s friendship groups and left John’s parents with the knowledge that everyone was taken care of.

What are the next steps to ensuring you have adequate life insurance?

That’s a question we often get asked. Here at Investment Zone, Financial Planners Brad Macaulay and Amber Simpson can assess your insurance position as part of a big picture analysis.

Life insurance does come at a cost. And yes, a good policy will cost more than a bad one. It can be complicated, and it requires some careful thinking about a topic that many would rather avoid. All up, it’s something most people give little thought to.

But life insurance is also incredibly important, and there is an art to getting the balance between cost and benefits just right. It is therefore essential to consult a licensed financial adviser who thoroughly understands your personal circumstances, can present you with options and explain the consequences of your choices.

Money alone won’t cure grief or fill the hole created by the loss of a partner or parent, but it can provide protection against a great deal of other pain. Death and disability often strike without notice, and if, like 95% of Australian families, yours is underinsured, now is the best time to do something about it.

Next steps

With this in mind, it is worth being proactive so you can have some peace of mind for the unexpected. Information is power, so take a look at these other information sources.


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The information in this communication has been prepared on a general advice basis only. The advice has been prepared without taking account of your specific objectives, financial situation or needs. Accordingly, you should, before acting on the advice, consider the appropriateness of the advice having regard to your objectives, financial situation, and needs. In cases where the advice relates to the acquisition, or possible acquisition, of a particular financial product, you should obtain a Product Disclosure Statement (or other relevant information statements) and consider such document before you make any decision about whether or not to acquire the product. For these reasons, it is imperative that you seek advice from your financial adviser before making any investment decisions. Investment Zone Pty Ltd (ABN 18 104 622 611) provides financial services as a Corporate Authorised Representative no. 296974 of Financial Force Pty Ltd ABN 42 091 425 464, AFSL no. 238337

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