Can you afford not to work?

None of us really want to talk about a future illness or injury, but sadly we know it’s a reality for many of us.

Being unable to work because of your health situation can mean ZERO income. Whilst workers compensation can cover you for a work-related injury, it doesn’t protect you in the event of a serious illness or injury outside the workplace.

A common statement we hear from clients is, “thank goodness I had my insurance in place, otherwise I couldn’t have paid for…” It differs from client to client, but always includes a range of the following: the mortgage, investment property expenses, rent, car loan, bills, school fees, living expenses, through to medical treatment and support for the condition.

Given 75% of all injuries and illnesses occur outside of the workplace, consider the following facts: ²

• 60% of working Australians will, at some stage, need to take a prolonged break from work because of illness or injury. ³
• A recent study by the Australian Research Council costed the goods/services required for the average Australian to lead a full, healthy life each week. There was no allowance for even the most modest or occasional ‘luxuries’ and wastage was kept to an absolute minimum. Figures are as follows:
• A single adult would need $600.
• A couple with no children would need $830. Add one child and that rises to $970. Add a second child, and it now rises to $1,170.
• A sole parent working part-time, with a child, would need $830. ⁴
• Research by organisations such as Mission Australia suggests that 30 per cent of Australians are six paydays away from homelessness. ⁵

Without an income, savings or insurance in place, most people would struggle to maintain their current lifestyle, let alone pay for additional medical expenses because of an illness or injury.

The most selfless thing you can do is ensure you can provide for your family should the unexpected occur.

What insurances can protect my income?

We all understand having suitable insurance in place for your circumstances will alleviate the financial impact of an illness or injury. So, if you cannot work for an extended period or ever again, you will continue receiving an income.

There’s not a ‘one-size fits all’ approach to selecting insurance policies. Having a tailored combination of insurance, like Income Protection, Total and Permanent Disability (TPD), Trauma (or Critical Illness) and Term Life can determine the financial impact on you (and your family), if ever a claim needs to be made.

It’s wise to have your insurance reviewed regularly to ensure the policies are still appropriate for you, taking into consideration changes in income, family circumstances and finances.

How does insurance work?

Life insurance products are complex and need to be tailored to each person and their circumstances to be effective.  Understanding the different types of insurances available, how they work together, how policies differ and how they pay out a claim is essential. Expert advice in this area is crucial to ensure you get appropriate cover.

Life, TPD and Income Protection Insurance can be held inside and/or outside your super. Having a portion of your insurance inside your super means it is less likely to affect your cash flow as premiums are paid by your superannuation, however, there can be limitations to the cover. Insurance outside of super will need to be absorbed by your cash flow but can come with greater choice of cover and other benefits.

Any claims must meet the criteria of the policy.  A TPD claim could include a disability from an injury, Trauma Insurance for a heart attack, cancer or a stroke, while Term Life could give early release of money due to a terminal illness or your death. Income protection insurance will pay up to 75% of your income, whilst Trauma Insurance, TPD Insurance and Term Life Insurance pay lump sum payments. 

How do I select suitable policies?

To ensure you select suitable policies, a comprehensive assessment of your personal circumstances will be undertaken by a financial adviser. Your age, income and family circumstances are just a few of the considerations, as well as all aspects of your financial situation like debt and savings.

Before committing to any insurance, it’s crucial to speak with an expert adviser who will explain the different types of insurance, the pros/cons of different products and calculate what cover you need. An independent adviser can compare insurance policies to determine those that would be relevant for your needs. They understand the fine print and are supported by research and legal teams who assess every product. Policies can be structured to ensure premiums remains affordable and potentially count towards your tax deductions.

If you were sick would you want private treatment? Whilst private health will pay for specialists, it doesn’t cover medications and other additional medical expenses. Insurance products can allow you to maintain your lifestyle during recovery, make alterations to your home in the case of disability, access specialist treatment, keep making loan repayments, stay on top of household expenses, continue to generate savings for your future and ensure your family does not need to make sacrifices if you are unable to work. Unlike Workers’ Compensation, you are covered 24 hours/365 days a year anywhere in the world.

Should you ever need to make a claim, a specialist will manage the whole claims process on your behalf, working hard to smooth the way and reduce the stress on you or your family.

When should I consider taking out insurance?

It’s never too early to start considering insurance, in fact, the earlier the better.  Just like all other insurances, life insurance policies need to be in place before you need to use it. Whether you are 25 or 55, it isn’t too late.

Age, gender and health are assessed when taking out a policy, so as younger people are generally in good health the costs will be less and more policy options will be available to you. As you get older your policies will cost more.

Depending on the assessment of your personal circumstances, premiums will vary. Being young, healthy and a non-smoker will lower costs.

Can we help?

At NFPG we have a team of experienced financial advisers who understand the insurance process from application to claim. With help and guidance from our team, you can assess your situation and determine the types and level of cover required to adequately protect you and your family. Our empathetic team know how hard it can be for clients to manage a serious illness or injury, so we are here to take away the financial burden and additional stress.

If you would like to learn more about insurance, want us to review your current insurance policies, or wish to discuss your personal circumstances with our team, please contact us or make an appointment. We are here to help.

 

Sources:

1. TAL “Income Protection and Workers Compensation”
2. TAL “Income Protection and Workers Compensation”
3. RI Advice Group Pty Ltd “Life protection solutions: How they fit together – to cover you and those who depend on you”
4. https://www.google.com.au/amp/s/amp.smh.com.au/opinion/revealed-the-minimum-income-for-a-healthy-life-and-how-the-dole-falls-way-short-20170822-gy1a21.html
5. https://www.google.com.au/amp/s/amp.smh.com.au/money/saving/build-financial-resilience-to-buffer-yourself-from-homeless-crisis-20170814-gxvisg.html

 

DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.