With more Australians having children later in life, starting a second family and carrying significant levels of debt well into their 50s and 60s, life insurance has never been more important.
Life is full of unexpected twists and turns and you never quite know what is around the corner. Protecting your family against the loss of all the things you have worked hard for over the years is the cornerstone of a sensible strategy to defend your wealth and current lifestyle.
Although most people know this, being ‘underinsured’ – or holding insufficient life-related insurance cover – remains common across all age groups in Australia.
The underinsurance problem
Australians are famous for their laidback attitude and, unfortunately, that attitude often extends to taking out life insurance protection for their families. While research shows more than three-quarters of us understand the need for life related insurance, rating it as important or very important, only 52 per cent of those surveyed said they actually held some form of life insurance.
Consulting firm Rice Warner has calculated that Australians should hold a total of $4,581 billion in life insurance to be considered adequately protected, but the actual figure held is only $1,811 billion.
Although the typical middle-income Australian family with two children needs an estimated $680,000 in life insurance cover to be considered adequately protected, Rice Warner found that the median level of life insurance held by these families is only $258,000.
Paying your bills and protecting your dreams
Without adequate life insurance protection, the financial burden arising from a serious illness, accident or death can cause severe financial hardship.
Such an event is not uncommon, with the Lifewise/NATSEM Underinsurance Report noting 18 families in Australia lose a working parent every day of the week. One in five families is affected by the death of a parent, a serious accident or an illness that renders a parent unable to work.iii
Increases in the number of second and blended families and ageing parents also mean many “breadwinners” now have more people than ever relying on them financially.
Life insurance protection is also essential for singles, as they often have fewer resources to fall back on to pay their debts and ongoing commitments such as rent and mortgage repayments if they become seriously ill or disabled.
Guarding your wealth
When it comes to developing a comprehensive strategy to protect your financial position, life insurance is a key component as it creates a safety net to protect your current lifestyle and the wealth you have accumulated.
Without adequate insurance protection, many families find themselves facing real financial hardship if the main or secondary income-earner, or the primary carer of the children, becomes sick or dies.
It’s important to look at your options in terms of life-related insurance as part of your financial goal setting. These products provide a highly effective way of protecting assets such as the family home, covering commitments such as credit card debts, paying large medical bills and avoiding being forced to sell off investments assets cheaply.
Life insurance benefits can be used in different ways depending on your personal circumstances and health, with the lump sum payment they provide easing the financial burden during what can be a very difficult time.
A tailored approach
For a complete wealth protection strategy, death cover is usually combined with other life-related insurance products such as critical illness and total and permanent disability (TPD) protection.
- Life insurance pays a lump sum on your death or diagnosis of a terminal illness,
- Critical illness (or trauma) cover pays an agreed amount if you are diagnosed with a specified critical illness, such as cancer or heart disease,
- TPD insurance provides you with a tax-free lump sum if you are permanently unable to work due to accident or illness.
These life-related insurances are designed to provide protection against the most common adverse life events and provide you with peace of mind so that if the unexpected happens, you and your loved ones have some protection.
McQueen Financial Group is a corporate authorised representative of Total Financial Solutions Limited. AFSL No. 224 954, ABN 94 003 771 579. This information is of a general nature only and does not consider your investment objectives, financial situation or particular needs. You should not act on any information in this report without first consulting a professional investment adviser in order to ascertain whether the information and any investment decision is appropriate. This information is believed to be accurate however no warranty of accuracy or reliability is given in relation to any advice or information contained, and neither TFSA or its Representatives and officers, agents or employees of either of the aforementioned shall not be held liable for any loss or damage whatsoever arising in any way for any representation, act or omission, whether express or implied (including responsibility to any persons by reason of negligence).