"We’ll be right, we’re insured!" (3)
From the experts at Mine Wealth + Wellbeing
If luck’s not on your side and you can’t work due to injury, illness, disability (or even if you die unexpectedly) insurance will help your family get on with life without having to start over.
Most Australians don’t think twice about insuring assets like their home and car, but it’s equally important to think of yourself as an asset. Consider that the average wage earner makes around $2.9 million over their working life1. That’s worth protecting!
If you become sick, disabled or die, your family can use your insurance proceeds to maintain their lifestyle, rather than dipping into savings or finding other ways to make ends meet.
Who is insurance for?
If you have debts or want to make sure you and your dependents can still live comfortably if you can no longer earn an income, you should consider having insurance.
While you might not be keen to pay for something you don’t think will ever happen, the reality is misfortune can strike people at any time. In fact, life insurance companies pay out almost $10 million every working day in claims to customers2.
Thinking 'it won’t happen to me' or 'I’ll do it later' can have devastating financial consequences. In fact, when you’re young, healthy and feel you don’t need insurance, it’s often the best time to get it! Later on you might start suffering health issues that can make you ineligible for cover or incur premium loadings.
If you’re hoping to get by without insurance, consider that:
- Workers compensation won’t protect you if you’re injured away from work or fall seriously ill;
- Health insurance won’t help with living expenses;
- Social security might not be enough to cover either your medical or living expenses.
Kate’s safety net
When Michael and Kate had their third child, they decided to see a financial adviser who recommended Michael be insured for $800,000. Kate thought this was a lot, but Michael didn’t want to be underinsured. He’d heard that for every home lost through fire, three were lost following a death in the family3, so he wanted to make sure Kate and the kids would be OK if something happened to him.
A few years later Michael was diagnosed with cancer and sadly died. Kate used the $800,000 insurance payment to pay off the mortgage and car loan, and then invested the rest for an income stream. She was relieved she didn’t have to get a job so she could be there for her children during this difficult time.
What initially seemed like a huge amount of money to Kate in the end meant her family could maintain their lifestyle. Kate was glad Michael had insisted on creating a safety net for her and the kids.
Are you a homemaker?
You might believe you don’t need insurance because you’re not in the workforce. However, if a stay-at-home parent becomes disabled or dies, the family’s breadwinner will either have to reduce their working hours or employ outside help. A family losing a stay-at-home parent may find the cost of home help and child care for young children exceeds $75,000 per year4.
Types of insurance we offer
- Death and Terminal Illness (DTI). Pays a lump sum if you die or have a terminal illness with less than 12 months to live.
- Total and Permanent Disability (TPD). Pays a lump sum if you become totally and permanently disabled. It must be obtained with DTI and not individually.
- Income Protection (IP). Replaces part of your income if you become too sick or injured to work or need to reduce your hours.
How much insurance do you need?
First, find out how much insurance you already have with your super fund or insurance providers, then calculate how much DTI and TPD insurance you need using one of two approaches:
- Needs approach: Add up your family’s financial needs that you currently cover with your income, such as the mortgage, credit cards, ongoing living costs, raising the kids, running a car and any other expenses.
- Replacement income approach: Calculate how much insurance you need to replace the income your family would lose if you became totally and permanently disabled and couldn’t work, or if you died.
While the resulting amount differs for everyone, a general rule of thumb is that most people need around ten times their annual income on DTI and TPD insurance5.
It won’t set you back as much as you may think! The cost of insurance is called the 'premium'. This is calculated based on the amount of insurance you want and your personal circumstances, such as your age, gender, smoking status, salary and job classification.
Tip: You can easily work out how much insurance you need and how much it may cost with our insurance needs calculator at www.mine.com.au.
Insurance isn’t 'set and forget'
As you move through life you should review your insurance needs. For instance, when you get married, buy a house, have children, change jobs or your financial position. These changes may mean you need more insurance to cover extra debts and responsibilities or less if you’ve paid off your home and your children have grown up.
Mine Wealth + Wellbeing makes adjusting your insurance easy, allowing you to increase your DTI and TPD insurance by up to $100,000 during a significant life event, such as taking out a mortgage, having a baby, marrying, divorcing, a dependent child starting high school, completing an undergraduate degree, becoming a carer or the death of a spouse.
If you have any questions or need help with making contributions, call us on 13 MINE (13 64 63), Monday to Friday, 8am to 6pm (AEST or AEDT when in operation).
Not a Mine Wealth + Wellbeing member? You’re welcome to join and enjoy access to this advice service to get on track and start making confident financial choices.
1 Based on full time adult average weekly ordinary time earnings as at November 2012, multiplied by 40 years of continuous employment. Source: Australian Bureau of Statistics
3 InsuranceFit www.insurancefit.com.au, February 2011
4Investment and Financial Services Association: Australian mothers – Undervalued and Underinsured, October 2005.
5TNS Research: Investigating the issue of underinsurance in Australia, August 2005.
More superannuation articles:
- Four-step guide to an investment plan that's perfect for you
- Consolidate your super for a wealthier retirement
- Grow super and pay less tax in one move!
- Recently made redundant? Use the time to sort things out
- Q&A: Should FIFO workers get better superannuation contributions?
If you have a superannuation question and think the answer might benefit other Mining Family Matters readers too, please ask away!
This is general information only and does not take into account your financial situations, needs or objectives. Before acting, you should consider whether the information is appropriate for you and read our Product Disclosure Statement (PDS). If there’s any inconsistency between this document and the PDS or Trust Deed the terms of the PDS or Trust Deed prevail. This information is based on our understanding of current Australian laws and assumes they will remain unchanged.
Issued by Mine Wealth and Wellbeing Pty Ltd ABN 70 003 566 989 AFSL 246 864 Trustee for Mine Wealth and Wellbeing Superannuation Fund ABN 16 457 520 308. Mine Wealth + Wellbeing Financial Advice is a trading name Mine Wealth and Wellbeing Services Pty Ltd ABN 49 051 315 014 a Corporate Authorised Representative of Adviser Network Pty Ltd ABN 25 056 310 699 AFSL 232729.