COUNTING THE COSTS OF LIFE INSURANCE

It probably comes as no surprise to anyone that there is a significant underinsurance gap between what we would need to maintain our standard of living should the unthinkable happen, and what we are actually covered for in the way of insurance. Australia is one of the most under-insured nations in the developed world, ranking 16th for life insurance coverage. [i]

There are lots of reasons people give for not buying life insurance, but top of the list is invariably cost. Sounds reasonable enough, especially when households are under pressure from increases in the cost of living. But dig a little deeper and it turns out the way we weigh up decisions when outcomes are uncertain is not always in our best interests.

According to something called Prospect Theory, people fear a certain loss more than they value a larger but uncertain gain.[ii] We tend to view money spent on insurance premiums as a loss, unlike money spent on a daily cup of coffee, a pair of shoes or a weekend away, which deliver immediate rewards.

There’s also a disconnect between what we say we value and what we spend our money on.

Thinking about the unthinkable

When asked, most people say the thing they value most is family. Yet when it comes to insurance many of us cover our car and our home but overlook our most important assets – our life, our ability to earn an income and the well-being of the people who depend on us.
Thinking about being diagnosed with a terminal disease, suffering a disabling accident or contemplating your own death or that of your partner can be very uncomfortable. Seeking cover for those possible eventualities is something that is very easy to put off or avoid altogether.

Although it is uncomfortable facing the thought of not being there for your family, the real value of life insurance is that it buys peace of mind that if we die or become seriously ill and are unable to work then the right amount of money will go to the right people when they need it most.

Types of life insurance

There are three main types of life insurance. Death cover provides a lump sum if you die or are diagnosed with a terminal illness; total and permanent disability (TPD) pays a lump sum if you are permanently disabled due to an accident or illness and unable to work; and Income Protection provides a monthly payment if you can’t work for a period of time due to illness or injury.

The amount of life insurance you need depends on your family circumstances, your income and lifestyle. While many working Australians have default cover in their super fund, that’s no cause for complacency. It’s often a basic level of cover which may need to be topped up either inside or outside super.

Take Chris, aged 30. He has a partner, two children and the median level of default life insurance cover in super for someone his age.  That is, $211,000 in death cover, $162,500 for TPD and $2,250 a month for income protection.[iv] According to a recent report by Rice Warner, the amount someone in Chris’s position needs is closer to $704,000 of death cover, $910,000 of TPD cover and $4,150 a month of income protection.[v]

Paying for a peace of mind

Paying life insurance premiums won’t provide the instant pleasure hit of an espresso, but most people would be surprised to know that the peace of mind that comes from protecting their family’s financial security costs less than their daily cup of coffee.

Rice Warner estimates the cost of death of and TPD cover for the average working Australian at less than 1 per cent of salary, and less than 0.5 per cent for white collar workers.[vi] Which begs the question, what cost do you put on the wellbeing of the people you love most?

If you would like us to help you work out the appropriate level of life insurance for your family, and the best way to achieve it, give us a call.


[i] Swiss Re Economic Research & Consulting , 2007
[ii] Prospect Theory, Wikipedia, https://en.wikipedia.org/wiki/Prospect_theory
[iv] Under-insuranced in Australia 2017, Rice Warner, p.20.
[v] Ibid, p.10.
[vi] How affordable is group insurance in superannuation, Rice Warner, December 2016,
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ODYSSEY Magazine | Autumn Edition 2016

In this edition of Investment Solutions magazine, we take a look at strategies to help you make the most of the end of the financial year. There are a range of ways to access income through your investments and we discuss some options that may be suitable for you. BT Financial Group Chief Economist, Chris Caton, provides an update on the wellbeing of the Australian economy. Finally, we share some signs you’re in need of a career change and highlight 5 key steps to help you realise the move.
From our team, we wish you and your family a safe and happy Easter. For a full version of our newsletter, please click here  Investment Solutions Magazine Autumn 2016

Until next time – happy reading.

ODYSSEY Magazine | Summer Edition 2015-16

In this edition of Investment Solutions, we take a look at the Australian property market and now things could be shaping up the years ahead.

With interesting rates at historically low levels, we discuss different options to position your portfolio and maximise returns.

In our economic outlook, we hear from prominent economists to understand if Australia is heading into recession.

Planning a holiday? We share 5 ideas that can help you get there without all the financial stress.

From our team, we wish you and your family a safe and happy new year. For a full version of our newsletter, please click here. Until next time – happy reading.

 

Can you afford not to have Trauma cover?

The daffodil is Australia’s symbol of hope. Each year, the iconic yellow flower blooms for Daffodil Day; one of Australia’s best known and most popular fundraising events.

Every day, around 350 Australians are diagnosed with cancer. But every day there is more reason for hope than ever before. Cancer research is discovering new and better treatments, cancer prevention campaigns are working and support for those affected by cancer is improving all the time. But with figures shockingly this high, it’s likely we’ll all be touched by cancer, either personally, or through a friend or family member.

Daffodil Day raises much needed funds for Cancer Council to continue its honorable work in cancer research, providing patient support and prevention programs for all Australians. However, organisations like Cancer Council also need your support. You can help this year by selling Daffodil merchandise, hosting a yellow morning tea or simply by spreading the message on social media.

Today is Daffodil Day. And we encourage everyone to get involved, in the hope that one day, we will find a cure. To make a donation or to find out more, please visit www.daffodilday.com.au

Can you afford not to have Trauma cover?

Life is full of surprises. From marriage and kids to travel and promotions, there are so many adventures to be had. However, for some of us, life’s little joys can be interrupted by sudden illness. Even the healthiest people are diagnosed with illnesses they have little chance of preventing – like cancer.

If this does happen, we understand this time can be extremely difficult. Ideally, you should be focusing on your health and recovery, not monetary problems. Trauma cover can help by providing a lump sum payment that you can use any way you like to help ease any financial pressure. You can reduce your mortgage, pay for specialist medical care, travel, or cut back at work so you can spend more time with the family.

For further information about protecting your future, please contact us via email at admin@ofm.com.au or by calling us on 1300 761 669. And in the meantime, please support Daffodil Day.

ODYSSEY Magazine | Winter Edition

With oil prices dipping in the first half of the year, we investigate what this means for investments. We also discuss how you can ensure you and your loved ones are protected should one of your children suffer an illness. We show how Child Protection allows you the breathing space to be there for your family when they need you most. Piers Bolger, Head of Portfolio Management – eQR Securities, provides us with his regular Market Update, looking at performance both at home and globally. Finally, we discuss the elusive work-life balance so many Australians struggle to attain and arm you with five tips to achieving it.

For a full version of our newsletter, please click here. Until next time – happy reading.

Discover how the inner circle can help you. Contact us today for a financial consultation.

This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs.
Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs.
Odyssey Financial Management is an authorised representative of Total Financial Solutions Australia Limited.