We are often asked by clients what they should consider when purchasing life insurance. This includes cover against death, permanent disablement, loss of income and specified trauma events. Life insurance can be a complex area, but incredibly important for many people and most families. Once in place, life insurance provides tremendous peace of mind against an unexpected event.
Protect Against Catastrophe / Default Super Cover is Rarely Enough
It is essential to have a level of cover that, in the event of death or disablement, protects your family against financial catastrophe. For example, an amount that clears the mortgage.
More adequate protection would be enough life cover to clear the mortgage and then enough left over to live comfortably until kids are no longer dependant. For example, an amount of 2 or 3 times the mortgage.
Where the cover is held can make a big difference to the overall cost due to tax benefits. There can also be major impacts regarding tax liability and options when a claim is made.
Generally, it makes sense to hold life and permanent disablement cover in super due to a 15% tax benefit available and also personal cash flow benefits. Income protection is usually held personally as it is tax deductible at marginal rates.
Protect your Salary – Income Protection
Your ability to earn an income can be your biggest financial asset. This value is based on income being earned multiplied by years to retirement. This can be a staggering amount for many people.
Group vs Individual Cover
Most people have group cover in their super, essentially entering a pool with other fund members. This cover may be reasonable, but consideration should be given to obtaining an individually underwritten policy, linked to your existing super account. This may provide higher quality, more tailored cover, portability between super funds and often cost benefits.
Quality of cover and premium prices vary markedly between providers so it pays to shop around.
Chris Hogan is Wealth Management Partner at Manser Tierney & Johnston (MTJ) Chartered Accountants (02 9487 2333) and an Authorised Representative of Lonsdale Financial Group Ltd, ABN 76 006 637 225, AFSL 246934. This information is of a general nature only and does not consider your personal objectives, financial situation or particular needs. This information should not be relied upon as a substitute for personal financial advice.