Most of the time your existing insurance should still be fairly up to date even with small changes in your circumstances. It is when there are significant changes to your circumstances that you should review your insurance.
Here are some other life events that might require a re-think of your life cover:
- Getting married (especially if you have a dependent spouse or new dependent children in blended households)
- Getting divorced (are your dependents changing?)
- Having more children
- Taking on more debt/financial commitments. e.g. investment property
- Refinancing your home and taking on more debt
- A significant pay rise e.g. 10-20%
- Becoming a non-smoker (or non-vaping) for more than 12 months
- Kids becoming financially independent.
- Change in occupation from blue collar to white collar occupations.
- You have paid off large debts.
When making changes to your insurance portfolio there are two ways we can do this for you;
Alterations of your existing policy (self-directed):
We always encourage people to ensure their current policy is covering their needs, so if you need to make alterations to your existing insurance policy we are happy to take your instruction and complete the alterations of your behalf. It’s worthwhile to note that when you provide us instructions to alter your policy that we are not providing you with advice. In these instances we do not charge a fee to handle the administration of your existing policy.
These types of alterations could be
- Changing your sums insured. If increasing the sum insured you may need to go through underwriting (health assessment) but there may be ways to increase your coverage at your policy anniversary without having to do this.
- Alter the benefit period or waiting period on your income protection.
- Update the beneficiaries on your Life insurance to ensure the funds are paid to where you want them to go.
- Administrative changes such as address, payment details, superfund payment details, phone numbers etc.
Things to consider with your sums insured and income protection features
Income Protection: Generally there are three things you can elect to alter with your income protection which influence the premium.
- Waiting Period: The options are 30, 60 or 90 days and the longer your waiting period the cheaper the premium becomes. Obviously the longer the waiting period, the longer you have to wait until you can receive a payment when claiming, so its important to think about how you and your family would cope over this period with no income.
- Benefit period: Generally you can have a 5yr benefit period or a benefit payable to age 65. Again, a shorter benefit period (5yrs) means a cheaper premium because the insurer would be paying a benefit for a shorter period of time. It’s important to think about what you would do for an income after the benefit period expires if considering a 5yr period.
- The monthly benefit (sum insured): This is how much the insurer pays you in the event of a claim. The lower the monthly benefit the lower the premium, but it’s important to remember that this is taxable like a regular income, so make sure you can cover your costs of living after paying tax. An income tax calculator can help you determine what your net income is after tax. Generally most income protection policies obtained prior to September 2021 cover 75% of your gross income plus superannuation contributions. These policies are generally better quality than those obtained after September 2021. For policies obtain after September 2021, they will generally cover 60-70% if your gross income (no super contributions).
Life & TPD: Think about what are the impact if you were die or if you were permanently disabled and unable to work again (TPD). In this case things to consider when determining your sums insured are:
- Payout your debts: Make sure to payout your debts such as mortgage debt, personal debts (personal loans, credit cards, etc) and consider if you want it to payout any investment debt so that any income earned from the investment can be paid to you or your family.
- Cover your final costs: It costs money to die. So cover your funeral expenses, legal/estate planning expenses, and any medical costs. We generally use an amount between $30-$50,000 for this.
- Consider covering your children’s education expenses: These costs can certainly add up if going to private schools, university or any other intended study.
- Create a lump sum of capital that can be used to help fund your living expenses: What we mean by this is that in the event of death, your family/household no longer has your income coming in but they will likely have similar living expenses. In the event of you being unable to ever work again due to permanent disability, you will get your income protection payments (if you have that cover) but that will only cover 60-75% of your income, so its likely you may need extra funds to cover your costs of living and its likely you will incur ongoing medical costs. For instance if you or your family need $50,000 per year for 20 years, and its assumed to be invested at 3%, then you would need a lump sum of $766,190 to do so. At the bottom of this article is a ready-reckoner for these calcs.
Trauma (Critical illness / Living benefit) insurance: This cover is paid on diagnosis of a critical illness, so it’s really to help with covering any medical costs, access to treatments not covered by medicare or private health and even help to cover any debt repayments. One of the most important things to consider with this cover, is if you suffered a critical illness what are the impacts on your spouse if they need to reduce their work hours to help with your care, treatment, transport etc. Generally at a minimum the unaffected spouse may have to work part time or sometime they cannot work. To calculate the sums insured we generally consider
- Covering Medical costs, treatment etc of up to $100,000 to $200,000. There is no set figure for this because it depends on what you would like your options to be when suffering a critical illness
- Do you need help to cover any short-term debt repayments to take the burden off the family?
- Cover 50%-100% of your spouses’ income for 2 years, so that they may work part-time or not have to work at all. This allows them to reduce stress about the financial burden occurring from suffering a critical illness and focus on your treatment emotionally.
Not sure what to do? Complete an in-depth review and personal advice – This is a paid service:
If you are unsure what you need to alter or would like to complete an in-depth policy review we can do that too. Generally, an in-depth review would compare the price, policy features & definitions, and structure to other insurers on the market as well as taking into account your current circumstances (financially, personally and medically) . This process can take some time for us to complete but at the end of the process, we will have recommended the best insurer for you by taking into account all of the above parameters. This way you have certain peace of mind that your cover is working efficiently for you and that you and your family are protected. As this option requires us to provide you with personal advice, we would charge a fee to cover our time.
It is also worthwhile noting that changing insurers will require you to complete a new application and go through underwriting, where they will assess your overall health. If you have had any changes in health then an insurer may exclude these conditions from payout or increase your premiums (called a loading) as they are taking on more risk. Rest assured we can guide you through this process.
We also consider what features you may gain in switching insurance contract but importantly what features you will lose, as this could mean the difference between making a successful claim or not. It is really important to get this right when changing insurers, and particularly for income protection policies setup prior to September 2021. It’s worth pointing out that the cheaper policies with a new insurer can become more expensive than your current insurer too.
The bottom line is if you think you need to make some changes to you cover, please get in touch!
Lump Sum of capital to create an income – Ready Reckoner
Capital Sum required to produce an annual income of $10,000
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| Example:
You have determined that your family would have ongoing income requirements of $50,000 per annum in the event of your death. The income would need to be maintained for 20 years and you estimate a real rate of return of 3% can be achieved on the capital invested. Note that using the figures in the above table, the capital would be exhausted at the end of the period. Income required: $50,000 per annum Number of years income required: 20 Real rate of return: 3% Calculation: $153,238 (for every $10,000 of income) x 5 = $766,190 |
As a reminder, here is an information sheet that explains the different covers that you may hold or consider.
| Type Of Cover Available | Description |
|---|---|
| Life Cover | Will pay a lump sum upon death or diagnosis of a terminal illness. It’s the easiest to understand when it pays out. Think about paying out your debt, covering education expenses, funeral & medical costs, estate equalisation, having an emergency fund for your family, creating a lump some to provide an income for your family. |
| Total & Permanent Disablement (TPD) |
TPD cover pays a lump sum if you become totally and permanently disabled and therefore are unlikely ever to work again. It’s about maintaining as much quality of life as possible. There are two forms of definition on a TPD policy
Eg. A surgeon injures his hand. Under ‘Any Occupation’ he would likely not be paid out as he could work as a GP, or lecturer. Under ‘Own Occupation’ he would get paid out because he can’t do the duties of his own occupation. Medical costs with these types of claims can be extremely high, so think about covering them. Also consider clearing your debt, providing an income for your family (remember income protection only provides 75% of your income), home modifications, access to treatment that you normally wouldn’t have access to. |
| Trauma (Critical Illness) |
This provides a lump sum upon the diagnosis, or occurrence of one of a list of specific injuries and critical illnesses. Death rates are falling for many of our leading health concerns, such as cancer, heart disease, strokes,& injury. It’s the financial cost of suffering these conditions that can be debilitating. On average, households (in NSW) can expect to incur $47,200 in financial costs after a member of that household is diagnosed with cancer. This doesn’t include rehab costs, lifestyle changes, time off work, ongoing treatment. What’s covered: About 40 conditions covered. Some of these include Cancer, Stroke, Heart Attack, Coma, Chronic Kidney, Liver & lung disease, Severe burns, Intensive care, Advanced Diabetes, Open heart surgery, Brain tumour, Multiple sclerosis, major head trauma, Motor Neuron disease. |
| Income Protection |
This provides a monthly benefit up to 75% of your gross earnings if you are unable to work due to sickness or injury. This cover is designed to help cover your ongoing commitments ie. Bills, debt repayments, costs of living as a result of not being able to work. Has a Waiting Period: This is when you need the policy to start after suffering the condition. Normal waiting periods are 30, 60 or 90 days. Has a Benefit Period: This is how long you can potentially claim for. eg. 2ys, 5ys, to age 65 or even age 70. Premiums for this cover are tax deductible if paid outside of superannuation. |
| Type Of Cover Available |
|---|
| Life Cover |
| Will pay a lump sum upon death or diagnosis of a terminal illness. It’s the easiest to understand when it pays out. Think about paying out your debt, covering education expenses, funeral & medical costs, estate equalisation, having an emergency fund for your family, creating a lump some to provide an income for your family. |
| Total & Permanent Disablement (TPD) |
|
TPD cover pays a lump sum if you become totally and permanently disabled and therefore are unlikely ever to work again. It’s about maintaining as much quality of life as possible. There are two forms of definition on a TPD policy
Eg. A surgeon injures his hand. Under ‘Any Occupation’ he would likely not be paid out as he could work as a GP or lecturer. Under ‘Own Occupation’ he would get paid out because he can’t do the duties of his own occupation. Medical costs with these types of claims can be extremely high, so think about covering them. Also consider clearing your debt, providing an income for your family (remember income protection only provides 75% of your income), home modifications, access to treatment that you normally wouldn’t have access to. |
| Trauma (Critical Illness) |
|
This provides a lump sum upon the diagnosis, or occurrence of one of a list of specific injuries and critical illnesses. Death rates are falling for many of our leading health concerns, such as cancer, heart disease, strokes,& injury. It’s the financial cost of suffering these conditions that can be debilitating. On average, households (in NSW) can expect to incur $47,200 in financial costs after a member of that household is diagnosed with cancer. This doesn’t include rehab costs, lifestyle changes, time off work, ongoing treatment. What’s covered: About 40 conditions covered. Some of these include Cancer, Stroke, Heart Attack, Coma, Chronic Kidney, Liver & lung disease, Severe burns, Intensive care, Advanced Diabetes, Open heart surgery, Brain tumour, Multiple sclerosis, major head trauma, Motor Neuron disease. |
| Income Protection |
|
This provides a monthly benefit up to 75% of your gross earnings if you are unable to work due to sickness or injury. This cover is designed to help cover your ongoing commitments ie. Bills, debt repayments, costs of living as a result of not being able to work. Has a Waiting Period: This is when you need the policy to start after suffering the condition. Normal waiting periods are 30, 60 or 90 days. Has a Benefit Period: This is how long you can potentially claim for. eg. 2ys, 5ys, to age 65 or even age 70. Premiums for this cover are tax deductible if paid outside of superannuation. |