THE TRUE VALUE OF LIFE INSURANCE
I once had a friend tell me that she did not believe in life insurance. She and her husband had worked hard to save for a home and improve it – home ownership was particularly important to them – so it struck me as very odd that they didn’t believe in life insurance. I asked her what they would do if one of them passed away, to which she replied that they would sell the house and their families would help them out. At this particular point, the bank owned most of their home, and while they didn’t have kids, this was firmly on the short term agenda for them.
Firstly – why would you want to sell your home – the single most important thing that provides financial security. Why work so hard to save for a deposit and make improvements when continuity of ownership wasn’t even guaranteed if the worst happened? And secondly – to expect your family would be in a financial position to provide assistance? I found this nonsensical and selfish.
I have experienced firsthand the absolute power a well thought out life insurance plan can have on the lives of a grieving family that has just lost a loved one. My father, who was also a financial adviser, unexpectedly passed away in 2009. His death was probably one of the most traumatic things me, my mum and brother had ever experienced, given it was accidental and we had to make the difficult decision to turn off life support.
My mum had never worked as she stayed at home to look after me and my brother. So dad was the breadwinner and realised that if anything ever happened to him, we would be in a spot of bother. He had life insurance inside his superannuation fund which was enough to repay the remaining mortgage on the house and generate an income for my mum to live out the remainder of her life.
Move forward to today and the value of life insurance is more relevant than it was all those years ago. Mum and Dad had been fortunate enough to be in the generation where a single income was enough to provide for a family and purchase a home. Nowadays – and most of the time – both members of a couple really need to work to generate enough income to support a mortgage and household. I for one would not want my partner to be in a position where he couldn’t retain the home that we literally built and have poured so much time and money into. And yes – we both have life insurance to protect each other if the worst ever did transpire.
Some people may think that life insurance is expensive and they cannot afford it. I think there is a saying – that if you cannot afford travel insurance, you cannot afford to travel. The same goes for life insurance – if you cannot afford it, then you can’t afford not to have it. There are options to have life insurance paid for by superannuation – and yes while it can affect your long term balance – strategies to tax-effectively top up your superannuation later when you have more cashflow can go a long way in mitigating this eroding effect. In addition, the level of life insurance you hold should not stay the same throughout your entire life – as you get older, repay debt, and get closer to retirement, cover can be decreased to better reflect your needs which also manages the cost of cover over time.
Think you have life insurance under super? You may not! Government legislation enacted a few years ago meant that superannuation companies had to turn cover off if member balances were too low or accounts were inactive. While I understand the Government’s intention was to protect member superannuation balances – I think it has definitely amplified an underinsurance problem in Australia.
If you are not sure if you have the right amount and types of cover – please get in touch. I can provide the assistance you require in protecting you and your family’s financial security.
We specilise in developing meaningful and lasting relationships with our clients. We are the Adviser’s Adviser – We provide strategy and process consultation to other financial advisers across Australia through our sister company Remga Paraplanning & Consultancy Services. We actually care about what we do and the client and do what is in their best interest, NOT like the banks.
Founder of Claridence Financial