Protecting your entire family (especially in retirement)

You’ve saved hard to build your retirement nest egg.You should be able to spend the money on a well-earned relaxing lifestyle. But all this could be put at risk if your adult children don’t have their own financial affairs well managed, particularly adequate insurance protection.

It’s human nature to assume that bad things only happen to others. Unfortunately this approach means that many people are unprepared financially for their future if sickness, accident or injury strikes. This often results in other family members having to bear the costs of supporting them.

For those close to or in retirement who are placed in this position, the financial impact can be devastating. 

Could this happen to you?

Let’s consider the example of Gary and Roslyn, both 61, who have one child, a 30-year-old daughter Janet. Gary and Roslyn are retired with an investment portfolio valued at $700,000, paying them an annual income of around $48,000. They also own their home, valued at $650,000.

Gary and Roslyn were enjoying trips away and spending time with their extended family members overseas until their lives dramatically changed when Janet was badly injured in a car accident. Janet was in hospital for almost three months, requiring another nine months of rehabilitation before she was able to return to work. 

Janet’s sick leave ran out after the first fortnight, and as she had no insurance cover in place, she had no income to pay the mortgage on her apartment ($2,500 a month) or other essential costs, including her mounting medical expenses.

As they didn’t want Janet to have to sell her apartment, Gary and Roslyn needed to draw on investment capital from their portfolio to pay Janet’s mortgage and meet her expenses for the year she was off work. This ultimately reduced Gary and Roslyn’s investment portfolio by almost $70,000 (or 10%). 

While Janet fortunately made a full recovery, the cost to Gary and Roslyn of supporting their daughter in her time of need meant a dramatic change in their long-term retirement prospects; ultimately their income was reduced by $7,000 per year for the rest of their lives (a 15% reduction), plus their travel plans were significantly affected.

What can you do?

Believing that unfortunate events only happen to other people isn’t a responsible solution and is a terrible way to jeopardise your retirement. As part of looking after your own financial future, make sure that others who could affect your plans, such as family members, havealso taken the right steps for their own lives.

Talk openly to your adult children about their insurance cover and if they are putting themselves or you at risk, recommend they talk to a licensed adviser or let us know and we can talk them with you.

 

To find out more about insurance and the protection of your family, get in contact with our Wealth Protection Specialist Anthony Kane by calling 07 3245 5466 or email anthony.kane@morgans.com.au who can tailor a protection program for both you and your family.

 

 

 

Managing the cost of insurance

So, you are seriously starting to think about your retirement. The kids are finally more independent, the mortgage is less than it was, and the super is more than it was (at last).

You look at your monthly bank statements and one particular debit is always there. The insurance premium. You have been paying it diligently for years now, maybe decades. But for what? You’ve not claimed and ‘gained’ anything so far. 

At this stage and age, it might be very tempting to cancel your policies and save a few dollars. Before you do, just consider what you could be losing in a future that’s not yet written. It could be hundreds of thousands of dollars. More to the point it could be your home, your lifestyle, or your health - the very thing you are hoping to protect.

Statistically you are more likely to claim the older you get. Look at these facts:

Type of cover	Average age people cancel policy	Average age people make a claim
Income Protection	45	46
Total & Permanent Disability (TPD)	49	48
Trauma Insurance	44	49

 

People often don’t realise an insurance policy is not an ‘all or nothing’ concept and there are options available. For example, as you get older and your debts and commitments reduce so might the level of cover you require. When cover is reduced, so is the premium. Take care though, once a policy is in place it’s easy to reduce the cover but much harder to increase the amount, particularly as you get older. It often only takes a phone call to lower the amount but countless medical tests to increase it or apply again. 

But before you rush off and reduce your cover, it’s important to tailor the amount of cover to your potentially changing circumstances, and this is where your financial planner can help. 

There are many other options available including requesting a freeze on the premiums; paying annually instead of monthly; moving your cover into your super fund (this is not available to all insurance however); or given that your adult children will usually be the ones who will eventually benefit, ask them to share the cost of the premiums!

The basic idea of insurance is not to put you in a better position than you were – it’s there to protect what you have. Regardless of what age you are,think twice about cancelling insurance completely. There are always other options available. Ask us for guidance before you make any decisions.

To find out more about insurance and the protection of your family, get in contact with our Wealth Protection Specialist Anthony Kane by calling 07 3245 5466 or email anthony.kane@morgans.com.au who can tailor a protection program for both you and your family.