Is personal insurance part of your financial plan?

Most of us don't question the need to insure our physical assets such as houses and cars. However, when it comes to our lives and ability to earn an income, many Australians tend to overlook – or have inadequate cover for – this important element of an otherwise sound financial plan.

Personal insurance can provide peace of mind and reassurance that if the unexpected happens, you and your loved ones will be protected. At its core, insurance is all about transferring risk. If you believe that you and your family could withstand the financial risk that might accompany adverse health or premature death of an income earner, then perhaps you don't need personal insurance. However, if you're like the vast bulk of Australians for whom such an event would prove financially crippling, adequate protection is a necessity.

A robust financial plan will consider a range of personal insurance scenarios such as life insurance, income protection, disability and trauma, providing a safety net and level of security for you and your family in the event of an unfortunate scenario.

Life insurance: Is your level of cover adequate?

In 2014 the MySuper regulations legislated that mandatory life insurance be included in employer-supported superannuation funds. Not everyone has access to employer super which means there are still individuals and families that are not protected at all.

Even those that are members of an eligible super fund are likely to be seriously under-insured for their needs.  Insurance levels within super vary from fund-to-fund and may be much lower than required by individual families.

Further, research by actuarial firm Rice Warner in 2014 suggested that even where insurance is held, it's likely to be inadequate. This particular study found that for the 'typical' middle income Australian family with two children, an adequate level of life insurance would be $680,000, whereas the median level held was only $258,000. That's a big gap and the shortfall could cause significant financial strain to a family confronted with adverse circumstances.

Of course there's really no such thing as 'typical' and the amount that's right for you depends on many factors, including household debt levels, the amount of income that would need to be replaced, ages of any dependants and a host of other issues. There's potentially quite a lot at stake so it's important to take the time to think through all the variables.

Income protection

Another form of insurance to consider is income protection (which is also known as salary continuance). Again, research supports the need for this type of cover. According to a studyconducted by insurer Zurich Australia in 2014, 38% of Australians believe they could only survive less than a month without their normal income before needing to sell off assets.

Income protection cover will provide up to 75% of your salary in the event you're unable to work as a result of injury or illness. The premium payable can be impacted by a variety of factors, including your age and income level, and some variables which you can specify such as how long you want to wait before benefits begin to be paid and a benefit payment period. It's worth noting that premiums for income protection are generally tax deductible.

Total and permanent disability (TPD)

Also worthy of consideration in a well-constructed portfolio of insurances is cover for total and permanent disability (TPD) which pays a lump sum benefit if, as the name suggests, you become disabled and as a result are unable to ever work again. TPD has the same financial impact as death, as it spells an inability to ever generate income again. In fact, the impact can be greater because of the need for ongoing care and lifestyle modifications.

Trauma insurance

Last and by no means least is trauma (or critical illness) insurance, under which a pre-determined lump sum is payable if you're diagnosed with a condition specified in the policy such as cancer or heart disease. It's a useful form of cover to have in place to help meet medical bills and can help to provide a level of financial comfort for those who are unfortunately afflicted with such conditions.

Source

---

The importance of estate planning: Is your Will up to date?

Although our passing is not a pleasant subject to think about, estate planning is an important process as it can provide you and your loved ones with the comfort and security of knowing that your estate will be distributed in accordance with your preferences. Estate Planning should ideally be considered and addressed early, and reviewed at key intervals.

Estate Planning is the process of planning and documenting your wishes for the distribution of your assets (which may be both financial and sentimental) when you pass away. It can provide peace of mind and minimise stress and complications for our loved ones by helping to ensure that:

• sufficient assets are available for your family to meet your wishes
• beneficiaries receive the entitlements you intend them to receive
• any taxation associated with the transfer of assets is minimised
• beneficiaries with special needs are protected
• ownership or control passes to a beneficiary at the right time.

Key steps of estate planning

Have a valid Will in place

Over half of the Australian population does not have a valid Will – the document that sits at the centre of a comprehensive estate plan. A Will is an important document because without it, assets may be distributed according to local state laws and not necessarily in accordance with your preferences. While this approach may be acceptable for some people, if you have specific requests for the distribution of your financial and sentimental assets you may wish to have a Will in place.

Appoint an executor

Apart from documenting how and when you would like your assets to be distributed, another key decision is the appointment of an executor. Whomever you choose needs to have the capacity and willingness to take on the role, so it's not a bad idea to have a conversation with your nominee before setting that decision in stone. It's also sensible (and often overlooked) to let the executor know the whereabouts of the original copy of your Will.

Appoint a power of attorney

Another document that should be considered when putting together your estate plan is a power of attorney. While a Will deals with your assets in the event of your passing, your incapacity due to an accident or trauma is an entirely different matter. A power of attorney can be drafted to allow your nominee to perform a specific function for a limited period, or it can be 'enduring' in nature. This effectively means your power of attorney 'becomes you' and can make decisions on your behalf.

Guardianship of children

An important issue to work through for those with young children is who would become responsible for them in the unfortunate event that both parents pass away. It also highlights the importance of keeping your Will current.

Let's say you choose grandparents to be the guardians of your children. This is a common choice, however it’s important to consider the selection of your selected guardian carefully as the task may become more challenging for them as they get older and it may make sense to appoint an alternative guardian. It’s therefore wise to have a discussion with your nominated guardian to make sure they're willing to take on the responsibility. Additionally, it's usually appropriate to make sure your Will makes specific provision (most likely through a trust structure) for the cost of caring for the children, especially if your nominated guardian is someone you might not otherwise leave part of your estate to.

Other issues to consider

Other issues to address include what to do about beneficiaries who might be subject to some type of incapacity, and establishment of testamentary trusts. These issues can be complicated, and may require considerable thought and ongoing review.

Review your Will at key intervals

Only a properly written and executed Will ensures your wishes will be met. To ensure this, Wills should be regularly reviewed to cater for changing circumstances such as:

• marriage, which generally makes any existing Will invalid. On the other hand, divorce isn't so clear cut and its impact varies from state-to-state
• the birth of a child
• the marriage of an adult child.

Source

---