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Protecting Your Family's Financial Well-being

Protecting Your Family's Financial Well-being

23 January 2013

It has been argued that even if insurance was free, there would still be an underinsurance problem in this country. 

Insurance is not a topic that engages people. It should though, because it is about protecting your family’s financial position in the event of unforseen occurrences or tragedies. 

The recent catastrophic bushfires should be a poignant reminder to us all of how such events can change our lives and the financial impact they leave behind. However, it needn’t be an event on such a grand scale that causes us to stop and reflect; circumstances such as the main family bread-winner becoming ill or dying can have a similarly devastating effect on a family’s financial well-being. 


If you don’t have the financial capacity to manage such events, you need to think about insurance. By not considering life insurance or insurance against major illness or disability, you are basically “self-insuring” against events that most of us do not have the financial means of managing. 

Evidence shows that people generally only consider insuring against events that they believe are more likely to occur, such as accident cover for the family car. However, the cost to insure a car is relatively high against the potential claim. In comparison, the cost of life, disability or critical illness cover is low, but the financial impact of such an event is much, much greater than writing-off your car. 

Ultimately insurance is about protecting what you value most – health, family and lifestyle. 

Gary O'Sullivan, principal of Blueleaf Consulting a specialist insurance brokerage firm, wrote in an article last year that whilst many people only think of death cover, there are a range of products available in the market that will provide benefits in the event of temporary or total disablement or a capital benefit upon diagnosis of a serious illness or injury for example heart attack, stroke or cancer. 

The various insurance products available and benefits provided by each are shown in the table below

TYPE OF COVER

BENEFIT IMPACT 

INCOME PROTECTION

This type of cover will pay you a monthly benefit whilst disabled if you are unable to work due to sickness or injury. You can normally cover up to 75% of income after expenses (based on previous 12 months' financial history) however certain limitations may apply.

TERM LIFE (DEATH COVER)

Provides a capital payment in the event of death, which can be used for: 
• Loan repayment and/or debt reduction 
• Capital to fund an income stream for the family

TOTAL AND PERMANENT DISABLEMENT

Provides a capital benefit in the event of an accident or illness which prevents you from ever working again at your own or any other occupation you are suited by way of training, education or experience (policy wordings may differ). This benefit can be used for: 
• Loan repayment and/or debt reduction 
• Capital to fund an income stream for family (if income protection cover is not available or has a limited benefit period) 
• Medical expenses

CRITICAL ILLNESS (TRAUMA COVER)

Provides a capital benefit upon diagnosis of a specified serious illness or injury, for example heart attack, stroke, cancer etc. This benefit can be used for: 
• Debt reduction or funding of interest on loans 
• Medical expenses 
• Short term funding for a carer

If you need convincing of the relevance of insurance as the most logical and cost-effective strategy to financially protect your family, consider what the alternatives are if you do not have adequate personal insurance - would you have to sell your family home, use savings, rely on the disability support pension, access superannuation early or move in with your extended family? 

You spend considerable time and energy creating assets, all of which could be eroded or lost quickly in the event of death, disablement or major illness. Insurance ensures the time you have spent accumulating these assets does not have to be repeated if the unforseen occurs. Insurance buys peace of mind. 

Note that this article is for general information only. We recommend you contact your Boyce Financial Advisor to determine what type(s) of insurance and levels of cover are most appropriate for your situation to adequately protect your family’s financial well-being. 

Boyce Financial Services Pty Limited is an Authorised Representative of Lonsdale Financial Group Limited, ABN 76 006 637 225, AFS Licence No. 246934. 

Source: Money Management “If insurance was free, would there still be an underinsurance problem?” by Chris Kirby, AMP – November 2012; Gary O’Sullivan, Blueleaf Consulting - April 2012

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