While online applications may be convenient and appear cost effective, when it comes to personal risk insurance there is no substitute for advice specific to your circumstances. Unfortunately, it’s usually not until you suffer a personal calamity and need to make a claim that you find that you ticked the wrong box or didn’t adequately disclose information to warrant payment.
When implementing personal risk insurance there is a lot to consider. What level of cover is appropriate so that you are neither under or over insured? How much does it cost and does the policy represent good value for the included benefits? And importantly, is the insurance company reputable and fair when it comes to definitions and paying your full entitlement in the event of a claim?
1. How much is enough?
Deciding the value of a life insurance policy requires careful consideration and usually includes calculating both the current and future financial requirements and circumstances of family members and other dependants. Typically, the claim amount needs to be sufficient to pay for day-to-day living expenses as well as funding for longer term requirements that would likely include:
- Paying out a mortgage and/or other debts
- Payment of medical bills and funeral expenses for the deceased
- Providing lifetime income that supports remaining family members which may include sufficient funding for major expenditures such as education for children
- Full or partial financial support for a spouse throughout their life including retirement
TIP If, among the insurance premium quotes you receive, there are policies that are either very cheap or very expensive, consider these red flags that require closer examination.
2. Inside your super or not?
Your life insurance can be held inside your superannuation fund. However, there are advantages and disadvantages that need to be considered. On the positive side, your premium will be paid from your superannuation fund so you will not be affected in terms of your day to day cashflow, Naturally, however, these payments will reduce your super balance, which may impact you at retirement time.
Many people opt for ‘group’ insurance through their employer’s superannuation fund. While it is often convenient, premiums can be higher while policy benefits can be less or inappropriate for an individual’s specific circumstances. Often a tailored policy held outside of the super fund is more suitable. It is also important to understand any conditions which may be specific to group cover. These might include cancellation of your policy should your employment circumstances change or reduced entitlements upon making a claim.
TIP Whether your insurance is held in super or not, when changes in your circumstances occur, review your insurance to ensure your cover remains appropriate.
3. The best time to implement insurance is NOW
The earlier you arrange your insurance cover the better, for two key reasons.
The younger you are when you take out your insurance policy, the likelihood of your being in good health means you will avoid higher premiums or exclusions that may apply when you have pre-existing health conditions. Then once you have insurance in place with your insurer, it may be guaranteed renewable regardless of the health matters that may affect you later in life.
The second reason to arrange insurance early concerns cost. Insurance premiums typically increase with the age of the policy holder. Arranging your insurance when you are younger may also mean a ‘level’ premium policy is a more cost effective long term option compared to the more usual ‘stepped’ premium policies. This can have a significant impact over the life of the policy. Advice will help you to determine the most appropriate option for your individual circumstances.
4. Insurance reviews – Why bother?
Personal circumstances change and this can render an insurance policy inappropriate for the new or changed circumstances. For example, beneficiaries will need to be reconsidered if a new family member is born or a spouse is divorced or passes away. Additionally, insurance companies are extremely competitive and this results in new insurance products being offered that may include enhanced benefits and/or premiums that can be less, while offering equivalent, and sometimes, greater value for money.
To implement a well-considered personal risk insurance strategy or to review your existing insurance plan, please contact me for more information. Please call (07) 3007 2007 or email snicholas@stratusfinancialgroup.com.au.
At Stratus Financial Group, we help families, professionals, executives, business owners and retirees manage their complex financial affairs and coordinate their professional advisers.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Stratus Financial Group strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.
Taxation outcomes are illustrative only. Always confirm your tax position with a registered tax agent.
