Personal insurance is becoming more difficult to obtain and increasingly costly to maintain. This blog outlines the approach we take when formulating how much insurance our clients need and strategies to manage its cost.
What is personal insurance?
This blog refers to personal insurance only. That typically includes up to four products:
§ Income protection insurance – which pays a monthly benefit if you are unable to work due to illness or injury;
§ Life – pays a lump sum benefit if you die;
§ TPD – stands for Total and Permanent Disability which pays a lump sum benefit if you are unable to ever return to work in the future, due to illness or injury; and
§ Trauma – pays a lump sum benefit if you are diagnosed with a ‘specified condition’ which, statistically, includes cancer and cardiovascular events. Even if your ability to be able to work is not impaired, you can still claim a benefit. Benefits are paid according to diagnoses, not symptoms.
Other common insurance products such as health, house and contents and car insurances are defined as ‘general insurance’ products. These are the domain of general insurance brokers, not financial advisors.
What determines how much insurance you need?
In most situations, the two key factors which dictate how much insurance you need are:
1. Financial commitments and obligations including mortgages, living expenses, children’s education, dependents and so on. The higher the levels of commitments, the more insurance cover you need. I view the cost of insurance as a necessary consequence of borrowing money. That is, if you aren’t prepared to obtain insurance to reduce your risk, then perhaps you should reconsider borrowing.
2. Your financial strength or net worth. The stronger your asset base is, the less insurance you need, as you have sufficient financial resources to maintain living expenses and meet goals for the rest of your life in the event you cannot work. Of course, if you do not have sufficient assets, you need some level of insurance cover.
Your requirements often depend on your stage of life
In the below video I walk you through the four common life cycle phases and how they relate to your insurance requirements.
Single
Whilst young adults typical
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IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.