Do you know that the average person cancels their personal insurance about 1-2 years before a claimable illness strikes! The average age a person discontinues one or more of three types of living insurance policies – cover for disability, critical illness/trauma and income protection – is 45 years yet the average age for a claim is 46.5 years. (source TAL)
SMSF regulations now require Self Managed Superannuation Fund Trustees to consider Insurance as part of the SMSF Investment Strategy . The following applies to everyone regardless of the type of investor you are or the structure you use to save for retirement.
Many clients in their late 50’s who have cancelled their life and income protection insurances before seeing an adviser. Usually they say it is because they have paid off their mortgage and are debt free so they didn’t feel they needed cover any longer.
Their focus now was on expense reduction and saving via salary sacrifice to superannuation and even some after tax contributions from savings.
While it is great to see them focus on saving for retirement and budgeting, what they don’t realise is that in cancelling insurances it is their retirement lifestyle or that of their spouse they are no longer insuring and not just their current needs.
With 5-15 years of focused savings towards a retirement nest egg they can substantially improve their lifestyle after retirement. However those dreams of a happy retirement can all be taken away with a diagnosis of cancer or a stroke that inhibits them working for a prolonged period.
You don’t just find yourself financing time off work and medical expenses but also lose out on the employer super contributions and salary sacrifice as well or worse for a small business owner, you face the expense of a getting someone to cover for you to keep the business afloat.
To realistically assess if you need to maintain your Life, Trauma or Income Protection insurance, you need to think through the worst-case scenario. If you were unable to work for 3 years due to an illness today, how would you and your loved ones cope financially?
- Would you be able to meet ongoing living expenses like food, clothing, changing the car, pay for private health insurance premiums, etc? (this assumes mortgage paid off)
- Would you have the liquid funds to cover additional expenses or loss in income (e.g., gap in your medical fees, time off work for your spouse to take care of you,
- What would happen to your retirement plans and would you be able to save enough money to see the kids through the final college years or fund your retirement comfortably?
- What if you were actually permanently disabled and they had all the costs of rearranging
the home, medical care and transport options for you.
In all honesty, it is always a struggle when you lose your earning capacity. The last thing you need compounding the situation are financial concerns. Insurance helps make sure that you and the people you care about will be provided for financially, even if you’re not around to care for them yourself.
So whether you’re in retail, industry or a Self Managed Super Fund, take a moment to consider how insurance might fit into your retirement plans. We can look at ways to reduce the cover and costs to keep them affordable and provide that protection for you and your family.
If you think you may need to review your Insurances then you can contact us to offer you advice on your options. As well as offering advice on Insurances, Superannuation and SMSF’s our advisers can also offer you help in many other area’s you may be experiencing problems such as:
- Financial Planning,
- Wealth Creation
- Debt Consolidation,
- Investment Portfolios,
- Estate Planning,
Source: Liam Shorte B.Bus SSA™ AFP
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