Article:

Why reviewing your personal insurance cover is so important

08 September 2020

Michael Ryan , Wealth Adviser |

I have just purchased a new home and we are expecting our first child any day now. This has got me thinking about what would happen to my wife and child if something happened to me.

As a financial adviser, I have taken out appropriate Life, Total and Permanent Disability, Critical Illness and Income Protection insurance cover, but these important changes in my life mean my cover may no longer be enough. I now have more debt, more responsibility, more expenses and my wife won’t be working for some time. All these things mean there is an even bigger reliance on our greatest asset – our ability to earn an income.

For me, just three months off work would be quite devastating, not to mention if something more serious occurred. My wife would likely be forced to sell our new home, change her lifestyle, go back to work earlier, work for longer and generally have a lower standard of living than what we have achieved. Likewise, if something happened to her, I would need to do the same.

These changes have prompted me to review my personal insurance cover and increase it to ensure we will be safe financially if either of us was unable to work for an extended period of time. But I know this train of thought is not shared by everyone. Personal insurance is often taken care of later in life and tends to be the first item cut from the budget when things get a bit tight.

I took out cover for my wife and I when I was 25 – the benefits of that were twofold:

  1. We did not have any medical problems at that age so we received standard terms (which might not occur today)
  2. I was able to fix our premiums at the rate of a 25 year old for the rest of our lives using what is known as ‘level’ premiums.

If you are unsure whether you need personal insurance cover, ask yourself these questions:

  • Do you have sufficient assets or other income to support your lifestyle for the rest of your life if something happened to you or your partner?
  • How would you manage without a salary or without your partner? Would you rely on family? For how long? Could you rely on government assistance?

Here are some statistics to consider:

  • One in five families will be impacted by the death or permanent disability of a parent
  • 60% of families will run out of money within 12 months if the main income earner dies
  • 40% of people will suffer a critical illness before they turn 65
  • One in six men and one in four women aged between 35 and 65 will be out of work for at least six months due to disability or illness during their working life
  • 95% of Australian families do not have adequate levels of insurance and the typical Australian family will lose half or more of its income following a serious illness, injury or the loss of one parent due to underinsurance.

No one likes paying for insurance, it is intangible and the odds are against us in terms of making a claim considering we actively try to prevent insurable events from occurring. However, we all know someone who has been diagnosed with a critical illness, had to take extended time off work because of illness or injury, or even passed away prematurely. It can happen to anyone. People are proactive at insuring cars and houses, but we forget about our most precious assets – our family and ourselves.

There are many ways to structure cover to reduce costs and, certainly as you get older (and hopefully wealthier), your need for personal insurance cover declines gradually. Therefore, reviewing your cover periodically is a very worthwhile exercise.

There are major changes coming to income protection policies next year, so ensuring you have the best policy in place before then is very important. If you have not reviewed your personal insurance cover recently, or if you have gone through some major life changes, now is a great time to consider talking to a BDO Private Wealth adviser about what you may or may not need