Are you sure you have protected your #1 asset?
When clients come to us, they may not necessarily understand precisely what they want to achieve financially. Invariably they are just like the rest of us and would like to achieve financial security and have choice.
As advisers, there are many strategies in our toolkit that can help our clients achieve this goal. What needs to be addressed early is the importance of protecting the lifestyle and wealth of our clients and their families.
When we ask our clients what their number one asset is, the common answer is their family home.
As we uncover the client’s goals, it becomes apparent this not completely true. Common goals include saving up for a deposit on a home or investment property, having more children & saving for schooling, planning a big overseas trip or even starting up a new business.
What enables any of these goals to be achieved is the ability to earn an income. If disabled temporarily or for long periods, these goals are in jeopardy without adequate planning.
What are the risks to generating an income?
Consider the following:
The median annual wage is $65,000 .
Average Australian home loan (as of end 2013) is $319,200.
20% of mortgage defaults are due to ‘illness or accident in household’ .
A significant proportion (38%) of working Australians could survive less than one month without their income before needing to sell assets.
Recent storms hitting the area left about 200,000 homes and businesses without power and costing millions of damage.
Medical conditions such as mental illness, cancers, heart attacks and strokes continue to cost us daily.
We can never underestimate what unimaginable disaster will affect us in the future or how easily our ability to earn an in-come can be limited, preventing our goals from being reached.
What is available to mitigate these risks?
The main suite of products that will ensure you are protected against short term and permanent illness, injury and death include life cover, total and permanent disablement cover, in-come protection, trauma insurance and business expense in-surance. A combination of these products will ensure that you are protected when you need it most.
With various structuring and product options available, it is important to seek an expert for personalised advice.
So do we really need insurances to protect us?
According to research, insurance companies paid out $1.81billion in death claims, $630million in total and permanent disablement claims, $539million in trauma claims and $1billion in income protection claims.
On average, $20million was paid in claims everyday by insurance companies.
Some quick ideas to consider when protecting your number one asset
1. How long do you require protection? Protection until retirement is a good idea. Long term policy holders can save on costs with the correct pricing structures.
2. Do you enjoy extra options? Products with extra features provide cover for more events giving a higher chance to make a claim. It’s important to determine which is applicable to you.
3. Do you want to minimise costing through smarter structuring?
There are options to balance cost and quality by utilising superannuation ownership structures.
The bottom line
Only 31% of Australians insure their income compared to 83% who insure their car. With unexpected natural disasters and rising concerns around conditions that will leave people out of work indefinitely like cancers, strokes, mental illness or heart attacks – it is becoming increasingly more important to protect your number one asset, being your ability to generate income.
1 ABS 6306.0 – Employee earnings and hours
2 ABS 5609.0 Housing Finance, Australia
3 Mortgage default in Australia: nature, causes and social and economic Impacts,
Australian Housing and Urban Research Institute, March 2010.
4 Zurich Misinsurance whitepaper February 2014
6 Risk Store, Australian life insurance claims analysis 2012. Ex-cludes business expense claims.
7 Risk Store, Australian life insurance claims analysis 2012. Ex-cludes business expense claims.
8 source lifewise.org.au