How long could your family survive financially if you suddenly lost your income due to an unexpected illness or injury?
Recent research2 suggests that around a third of us may not have enough savings to manage financially for a month if we suddenly lost our income.
So, while you may have insurances in place, do you really know what you are paying for?
5 personal insurance tips to help you check your cover
#1 Recognise the key dangers
The behaviour of Australians in relation to personal insurance shows up two worrying trends:
- Misinsurance – having the wrong type of insurance
- Under-insurance – having the appropriate insurance but insufficient cover
The consequences of having inappropriate insurance and/or inadequate cover can be very serious and may include policyholders not being paid their full entitlement at claim time, despite having fully paid their premiums.
#2 Understand your cover
A Whitepaper by Zurich Insurance1 investigated Australians’ understanding of their life insurance cover, both within super and outside of super. The Whitepaper indicated that Australians generally don’t know how much cover they have in super or, whether it suits their circumstances and approach to risk. Alarmingly, a significant number of research participants incorrectly believed their life insurance in their super covered them for trauma and other conditions. It doesn’t. Further many life insurance policies in super do not require a medical assessment. This may lead to issues with payouts if pre-existing medical conditions are identified.
#3 Be realistic about financial risk
The Whitepaper also identified a serious mismatch between an individual’s financial situation and their approach to risk. 58% of those surveyed indicated that if they were unable to work because of illness or injury, they could only survive for about three months before needing to sell assets. However, despite this reliance on income, only 10% said that losing their income was a major financial concern for them.
#4 Understand disability insurance
Research conducted by Zurich Insurance and Oxford University also revealed that Australians have poor financial literacy on insurance in general, with only 19% of respondents (about 1 person in 5) reporting a ‘good to very good knowledge’ of disability insurance2. Disability insurance, also known as TPD or total and permanent disability/disablement, provides you with financial assistance if you are permanently disabled and unable to work in a normal capacity ever again.
#5 Mind the gap
The survey describes the typical ‘income protection gap’, where a person’s actual need for income protection is not in line with their existing cover2. While nearly 50% of Australians have experienced income loss due to serious illness during their professional life, just over a quarter are insured against trauma, illness or disability2. This is despite the fact that almost one third of survey respondents said they have less than one month’s savings to use in such an event2.
Your next step
When it comes to personal risk insurance, there is no substitute for professional advice that is specific to your circumstances. Implementing personal risk insurance is complex and requires careful consideration of these factors:
- the level of cover that is appropriate;
- the premiums and payment structure;
- whether the policy represents good value for the benefits that are included; and
- whether the insurance company has a good reputation for using clear and useful definitions and for paying the policyholder’s entitlement in full in the event of a claim.
If you haven’t reviewed your personal insurances for a while, it’s time to do something about it. Doing so could make all the difference for you and your family in the event of illness, trauma or disability.
For help to implement a strategy for your personal risk insurances or to review your existing personal insurance arrangements, please contact me on 5477 5124 or jeff@ekofin.com.au
Jeff Ebsworthy is known for helping business owners, professionals and retirees to make smart money decisions so they can live the life they want…
This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs.
Jeff Ebsworthy is an Authorised Representative No. 231824 of Magnitude Group Pty Ltd ABN 54 086 266 202 AFSL No. 22155 and is a financial adviser with EKO Financial Pty Ltd. EKO Financial Pty Ltd ABN 66 116 276 361 is a Corporate Authorised Representative of Magnitude Group Pty Limited ABN 54 086 266 202 AFSL No. 221557.
1 Zurich Insurance, Research Whitepaper, February 2014, ‘Australians and life insurance: misinformed, misinsured?’ Accessed 30 July 2018 at http://www.zurich.com.au/content/dam/australia/life_insurance/zurich-australia-whitepaper_australians-and-life-insurance_misinformed-misinsured.pdf
2 Report: Income Protection Gaps: a rising global challenge. Accessed 30 July 2018 at https://www.zurich.com/_/media/dbe/corporate/docs/whitepapers/risk-nexus-income-protection-gaps-november-2015.pdf?la=en&hash=5D2FD49812E4579F145820B852C869C7C4301AF8
