If you have a financially dependent family, you should make sure you have enough insurance to maintain their living standard in the unforeseen event of your death or disability.
Life & Total Permanent Disability Insurance
In the event of your death or if you become disabled and can’t work again, the emotional strain on your family can be quickly compounded by financial strain if you don’t make suitable plans to help protect their financial future.
Without the ongoing income you earn from working, your family could struggle to cover the mortgage, pay their living expenses and meet a range of other costs.
- meet their immediate and future financial needs, and
- maintain their living standard.
Level of Insurance Required
The amount of cover you may need will depend on your family’s specific circumstances and what you want to achieve. Some key issues to consider include:
- How much of your income would your family need if you are no longer able to provide for them?
- How long would you like the income to be paid for?
- Would you like your mortgage or other debts to be paid off?
- Would you like to leave an inheritance for your children?
- Are there any costs that would need to be met, such as funeral or rehabilitation expenses?
- What investment assets would be available to help meet these needs?
Your Financial Adviser can take into account all these issues and help you identify how much life and TPD cover is right for you and your family.
Research conducted by Rice Warner Actuaries* found that the:
- median level of life cover held through super funds meets only 61% of the amount required to pay all non-mortgage debt and sustain the current living standard until age 65 or until children reach age 21,
- median level of the life cover held through super is only 37% of the amount required to replace expected net income and maintain current living standards until age 65, and
- median levels of total and permanent disability cover and income protection cover meet only 13% and 16% of their respective needs.
*Rice Warner Actuaries. ‘Underinsurance in Australia’. 2015
Max (aged 45) is married to Rachel (aged 40) and they have two young children. Max works full-time while Rachel is taking a break from work while she looks after their children.
Max currently has life and TPD cover in his super fund and some investments outside super. But he realises this won’t be enough to ensure his family can maintain their living standard in the event of his death or long-term disability.
After discussing the family’s needs and circumstances with his adviser, Max decides he would like to take out additional life and TPD insurance so that enough money becomes available to help:
- payout their mortgage, and
- provide an income to meet his family’s living expenses for the next 20 years.
He has chosen a payment period of 20 years to ensure that income is provided until he would have retired (at age 65) and would no longer be earning a salary.
It would also be essential to ensure Rachel, as the primary caregiver, has enough insurance to help protect the family’s lifestyle in the event of death, illness or injury.
To find out more about this important insurance need, get in touch with our Financial Adviser to schedule a complimentary consult.
Potential benefits of insuring in super
- If you get life and TPD insurance through a super fund, you may be able to:
– pay the premiums with pre-tax dollars, or
– claim your contributions as a tax deduction, regardless of whether they are used in the fund to purchase investments or insurance.
- You could arrange to have your premiums deducted from your existing superannuation account balance without making additional contributions to cover the cost. This could make the insurance affordable if you don’t have sufficient cash flow to fund the premiums outside super. However, this will use up super savings that would otherwise be available to fund your living expenses in retirement.
- If you die or become totally and permanently disabled, some (or all) of the benefit could be used to pay a concessionally taxed pension.
Note: This case study had been simplified to illustrate the important role that life insurance can play in helping the family to maintain their living standard in the event of death. Each person’s situation is different and the approach used to determine the amount of insurance required may differ for people with different needs and circumstances.
Considering Life or TPD Insurance?
If you are considering life and/or TPD insurance, we can help you work out a suitable strategy for you and your family.
Chat to us, give us a call at 9217 2400 or contact us here.
Important information and disclaimer
This document has been published by Here Business & Wealth a Corporate Authorised Representative Number 1239944 Of Futuro Financial Services Pty Ltd
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.
While it is believed the information in this publication is accurate and reliable, the accuracy of that information is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of the NAB Group, nor their employees or directors give any warranty of accuracy, accept any responsibility for errors or omissions in this document.
Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.