Introduction:
Risk management and personal insurance must be considered an integral part of the financial planning process. Just as you insure your house, car, and other property against loss, you should also ensure that you insure yourself against illness or death.

The Importance of Personal Insurance:

Have you thought about how your family or your partner would cope financially if you died or could not work? Personal insurance can help prevent your dependents from being financially disadvantaged if you die, suffer a medical crisis, or are disabled. Most people purchase house, car, and health insurance without much thought but are either underinsured or uninsured for events such as death, trauma, or disablement. Yet, you and your ability to earn an income are probably your most valuable assets.

Determining the Level of Insurance:

Sometimes, the hardest part of organizing personal life insurance is working out how much you should be insured for. When determining how much you should be insured for, take into consideration goals such as:

• Providing a lump sum to repay your debts and reduce financial pressure on you and/or your family so assets can be retained.
• Providing an income stream to replace your salary or allow time off work while recovering.
• Covering expenses that may arise, such as medical expenses, care needs, funeral expenses, or home modifications.

Even if you are not currently earning an income, you should still consider covering yourself for any expenses that could arise if you die, become disabled, or suffer a serious illness (e.g., childminding).

Example:

Lynette is a stay-at-home mother caring for her three children. Her oldest child is at school and the other two attend pre-school two days a week. Lynette’s husband, Jim, works full-time. If Lynette passed away or became disabled, the family would not lose any income, but Jim expects that he would continue to work and the family may incur additional expenses to cover the cost of care for the household and the children. If Lynette is disabled, her family may need help to care for her and assist with care for the children. Lynette and Jim decide to take out term life and TPD insurance policies on Lynette’s life. The insurance will pay a lump sum to either Lynette or Jim (if Lynette dies) which could be used to cover these expenses.

Calculating the Amount:

Selecting the right amount of cover will depend on your circumstances and family needs. You may also need to be able to justify that this amount is appropriate and not just opportunistic. You might wish to use one of the two following methods:

• Expenses Method: Estimate what expenses need to be covered (over a determined timeframe) and apply for insurance equal to this total amount.
• Replacement Method: Take out cover to replace your annual income multiplied by the number of years of your remaining working life. Or you might look at a combination of the two options.

Whichever method you use, take into account your need to meet the following expenses:

• School fees and education costs for children.
• The impact of inflation.
• Repayment of debts.
• The costs that would be incurred if you died, became disabled, or suffered a serious illness.

It is easy to miss important considerations and apply for inadequate levels of cover. Advice is important. Your superannuation fund may give you some automatic cover, but this alone is often not enough.

Seek Professional Advice:

Your financial planner can assist you in determining which types of personal life insurance are appropriate, how much cover you need, and which life insurance companies provide the best products for you. Take action today.

The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.