Parents – please resist the natural urge to avoid this article because you don’t want to think about the topic. The tool I share below could save you considerable stress if misfortune strikes your family.
What would you do if your child suddenly and unexpectedly became seriously ill?
If something happened to Sophie or Isaac I would want my wife and I to be able to quit work immediately and be by their side, full–time.
I wouldn’t want one of us to have to work just to ensure the mortgage and bills get paid.
I wouldn’t want to be dependent upon the generosity of family, friends and the community to get by.
I would want to be able to afford top health care.
I would want to stay in our home. The comfort and familiarity will be an essential aid to recovery, for us and the ill child. Moving home is an added stress we won’t want.
But with most families dependent on their income, where will the money come from to provide the freedom to make those choices?
Children’s critical illness insurance is also known as children’s trauma insurance.
Child critical illness insurance pays you (the parent or guardian) a lump-sum on the occurrence of one of a number of conditions, similar to how your own critical illness (trauma) policy operates. You choose how to use the lump-sum.
Most policies cover over 20 different illnesses including the ones you’d commonly think of such as:
Paralysis, including paraplegia and quadriplegia
Loss of limbs
Blindness, deafness or loss of speech
Death and terminal illness
As with all insurance if the severity of the illness meets the policy criteria then you will be paid a benefit. With these policies the benefit will be paid as a lump-sum.
How do you get children’s critical illness insurance?
Child critical illness insurance is an optional add-on to the parent’s insurance policy. It can be an option to life, TPD or trauma insurance. So even if you don’t have your own trauma insurance policy you may be able to add child trauma insurance to your death or TPD policy.
Usually the child needs to be at least 2 years of age before you can add them to your policy, though I’ve seen policies with entry ages up to age 5. Even if your child is not yet that old when you buy your policy you can add the child trauma option when they are old enough (which is exactly what I did for my two children.)
Many policies are now offering maximum cover up to $200,000.
How much does it cost?
Premiums range between $200 and $300 per year per child for the sum insured of $200,000. You can choose to insure for a lower amount to fit within your budget.
At around $5 per week per child I consider that value-for-money peace of mind. Much more valuable than my car insurance.
Why you should consider children’s critical illness insurance
It doesn’t matter if you believe the likelihood of serious illness is low. The life and financial consequence to your family would be severe.
It is the severity of the consequence that makes the risk high enough to warrant managing the risk through insurance.
Get the protection then get on with enjoying your family time with peace of mind.
In November we decided to replace our second car after the old one was sentenced to death row during a regular service.
In researching new (small) cars I noticed that many of the modern popular features are not available in the base/lower versions of several models. You need to buy the higher version to get those features.
Side and curtain airbags to elevate the model from a 4 to 5 star ANCAP safety rating
Bluetooth connectivity (for your phone and/or MP3 player)
Rear electric windows
I don’t consider such features as luxurious bells and whistles. To me they should be standard based on the way many in the western world are living our lives right now.
So going for the premium version of a model doesn’t just get you sexier exterior and interior trimmings plus a more powerful stereo – things you may not really need. You need to upgrade to the premium version just to get the 5 star safety rating – a really valuable feature to all.
Similarly for personal insurance
I have noticed a similar trend in personal insurance following the recent season of product upgrades.
In the case of car buying our extensive driving experience makes us better equipped to identify and assess the value of the extra features in the premium versions of models.
Not so with personal insurance where many of us have no direct experience.
With personal insurance going for the Premier or Plus version of a policy doesn’t just get you a bunch of lovely ancillary benefits that may aid your comfort when you claim.
Increasingly I am noticing that you need the top version to get the more generous definitions of core policy terms – the terms that will affect whether you can successfully claim at all.
A disability example
For example, the definition of disability will affect whether you are considered sufficiently disabled such that you can claim under your income protection or total & permanent disability (TPD) policy. It is a core policy term and you want a generous definition that increases the scope of situations in which you could receive a benefit. A narrower definition may mean that even though you are unable to earn at full capacity you don’t receive any insurance benefit.
With some income protection and TPD policies I have noticed you need to select the Premier/Plus version to get the market-leading generous policy definition of disability.
Similarly with trauma insurance policies the top versions have the market-leading definitions for core (the most common) illnesses such as cancer, heart attack and stroke.
How do you know?
You’ll only realise this if you take the time to read the Product Disclosure Statement (PDS). You won’t realise this if you are just ringing around getting quotes and making a decision on premium price under the assumption that most products are similar.
What you should do
In the past I’ve often recommended you don’t just choose the cheapest insurer because they usually are cheaper due to being stricter with their policy terms.
Now I am extending that to explicitly recommend you don’t just choose the base/cheapest version of an insurer’s policy. The premium version may offer market leading terms for core features – a bit like the 5 star versus 4 star safety rating in cars.
Take the time to read the Product Disclosure Statement and understand the core differences between basic and premium policy versions.
And if you don’t have the knowledge and/or time to make that thorough comparison then outsource to a qualified, experienced financial planner or insurance broker. Their fee will be worth its weight in gold in ensuring you purchase a good value-for-money policy.
Insurance is a tool to help protect your lifestyle and wealth creation if misfortune strikes.
This article provides a brief overview of the four main types of personal risk insurance. Commonly these are referred to under the umbrella term of “life insurance” but they each serve distinct purposes. Think of each type as a different strand in your safety net.
For more detail on each cover please browse through my article archive. The archive includes articles on:
Why you would have each cover
How to work out how much cover you may need
Statistics on the likelihood of events occurring
The cost of items and services you may need if you were seriously ill or injured
Life (or Death) Insurance
Pays you a lump sum benefit on your death. Modern, quality policies often include a feature that gives you an advance payment if you are diagnosed with a terminal illness.
In my experience premature death is the life event most considered by people when they think of personal insurance. However it is perhaps the least likely event that can have a serious impact on your wealth creation. Therefore the next three types of life insurance cover are critical to understand.
Income Protection Insurance
I consider income protection insurance to be the most important personal insurance for anyone who is not yet financially independent. So that’s most adults.
Income protection insurance pays you a regularly monthly benefit while you are temporarily unable to work due to injury or illness.
Short term incapacity is one of the most likely events. And since many people would fall behind in loan repayments and bills if they were out of work for just one or two months, the impact of short term incapacity is high.
You can also receive a partial benefit when you are partially disabled and only able to work part time. This is a very crucial point as partial disablement is probably more likely than total disablement. So it is great to get some benefit to top up your part time income.
Income protection insurance generally pays up to 75% of your total remuneration package (including superannuation and non-cash benefits.) You can choose the waiting period before a benefit will be paid. Plus you can choose for how long the benefit will continue to be paid if you are long term disabled. Commonly financial planners recommend a waiting period of 30 days and a benefit payable up to age 65.
One bonus is that premiums for income protection insurance are tax deductible.
Total & Permanent Disablement (TPD)
Many people have some Total & Permanent Disablement insurance within their employer superannuation but it is rarely close to enough cover.
Total & Permanent Disablement insurance pays a lump sum benefit if you (as the name suggests) are totally disabled and are expected to be for the rest of your life. The rest of your life part is as determined by specialist medical practitioners.
Total & Permanent Disablement is a compliment for income protection insurance. Whilst there is some overlap having TPD is not a replacement for having income protection insurance.
When you are long term disabled you have extra expenses compared with being short term unable to work. For example you may require modifications to your car and house. You may also need to pay for a carer and other household services. If your partner becomes your carer then you’ll need to replace their former income instead.
Total & Permanent Disablement insurance can be used to top-up the extra 25% of your income not covered by income protection insurance. Plus you’ll need some money to cover the saving and investment you would have being doing if you worked your whole life. This can be used to meet your expenses from age 65, which is the maximum age for most income protection policies.
Trauma or Critical Illness Insurance
In my experience another life event that occupies people’s mind is ‘what if I get cancer or have a heart attack?’
Trauma insurance pays you a lump sum if you suffer a serious illness.
Importantly it has nothing to do with your ability to work as a result of the illness. As long as the illness is serious enough to meet the minimum medical definition (in your policy) then you can claim a benefit.
The four most common illnesses covered under these polices are cancer, heart attack, stroke and coronary bypass surgery.
Commonly you could use this benefit payment to help you meet the costs of medical treatment including medication.
Also, if faced with a serious illness many people would like to choose to stop working to focus their efforts on beating the illness. If you medically are able to work but choose not to work then income protection insurance won’t pay you a benefit. So you can use your trauma insurance to replace your income for a year or two while you choose not to work. This can also apply to replacing your partner’s income as many partners may like to be able to be by your side to support you.
You can claim on all four types
It is important to note that you can ‘simultaneously’ claim each of income protection, trauma and TPD insurance for the same illness. Here’s an example how:
You suffer a serious stroke. It meets the medical definition so you claim your trauma benefit.
Immediately you can’t work or do much at all so after 30 days you claim your income protection benefit. This keeps paying you each month while you continue to be disabled.
After 6 months (or 12) you have not recovered your ability to return to your occupation and the doctors unfortunately say that you never will. You make a claim for your TPD benefit and receive a lump sum payment. This claim does not wipe out your income protection, which you continue to receive.
Many years later you pass away and your partner receives a benefit from your life insurance. (At this point the income protection benefit does stop.)
How much cover?
To assess how much cover you need for each of the four types of personal life insurance you need to consider your personal life choices. These are individual to you so there is no set rule of thumb.
Insurance fills the gap between the wealth you need to find your desired life, and the wealth you currently have. So your required level of cover (sum insured) changes over time.
To get the cover right first you must consider the life choices you would make in each of the circumstances. Next you work out how much it would cost to fund those life choices.
The calculations can be difficult so use a financial planner to guide you through the process.
Many people overlook personal insurance thinking tragedy will never happen to them. Then a friend or family experiences tragedy and they get a wake-up call. The latest research released yesterday by Lifewise/NATSEM reveals that it can and probably will happen to you at some time during your working life. More than one in five families will be impacted by an insurable event in their working lives.
Over one million working-age parents with dependents will be impacted by death, serious accident or illness.
Many people overlook personal insurance thinking tragedy will never happen to them. Then a friend or family experiences tragedy and they get a wake-up call.
The latest research released yesterday reveals that it can and probably will happen to you at some time during your working life.
Let this research be your wake-up call to review your health, wellbeing and safety nets.
Research by NATSEM for Lifewise revealed that based on 2008 statistics:
18 Australian families lose a working age parent every day.
Every year 235,790 working age parents suffer a serious illness or injury
Every year over 17,000 working age parents are forced to stop working, either permanently or for an extended period of time.
More than one in five families will be impacted by an insurable event in their working lives.
Yesterday I was given a DVD called “Living with Water” about water safety with children. It’s aimed at preventing the drowning deaths of children under age five – 300 of which have occurred since 2000. That’s just over 30 drowning deaths per year targeted by this significant, government funded initiative.
The death of a child is tragic and I agree with our focus on water safety. Yet consider the massive impact on children and families when family income is slashed by injury, illness of death. And take note that more families per day are affected by that than are affected by the drowning death of a young child.
The financial impact
It should be no surprise that the basic levels of insurance you may automatically receive with your employer superannuation are nowhere near enough.
With typical levels of insurance cover the typical family with dependants will lose around half their income if tragedy strikes, according to the research by Lifewise/NATSEM.
Could you and your family survive on half your income?
When you consider the true likelihood of an insurable event and the financial and lifestyle impact, the cost of insurance cover is very affordable protection for your family.
Contact me to discuss how much insurance cover you may need and how affordable it can be.
Yes of course if you are faced with a life threatening illness you’ll happily sell investment assets to fund your lifestyle and medical expenses.
But what if that is not enough?
And what next once you’ve pulled through?
“The financial impact of something like breast cancer is enormous”, said Wells in the article, which also reported that she had taken two years off work to fight her illness.
If that financial impact concerns you then it’s time to look at another strand in your safety net.
A Valuable Tool – Trauma Insurance
If you want to be able to fund your choice of medical treatment then trauma insurance can provide you with the money.
If at the same time you want to protect your family’s lifestyle and avoid financial stress then trauma insurance is essential.
Trauma insurance pays you a lump sum benefit on the diagnosis of a serious illness. The most common four conditions are cancer, heart attack, stroke and coronary surgery.
A beautiful partner to income protection insurance
If your serious illness means you are unable to work then you may be able to receive a benefit from your income protection policy. This replaces up to 75% of your income so it goes a long way to helping you maintain your existing lifestyle commitments.
However, a serious illness will increase your expenses. So you need additional protection. That’s where the trauma insurance helps a lot.
The Cost of Treatment
Treatment costs vary widely but its probably much higher than you think. The article in The Weekend Australian noted that many modern drugs used for cancer treatment cost between $25,000 to $50,000 per year.
Importantly not all are subsidised on the Pharmaceutical Benefits Scheme (PBS).
If your doctor told you of a new wonder drug that could save your life but it was not yet on the PBS would you find some way to come up with the money?
It’s human nature to. But then if the drug works you will survive but may be financially crippled or at least strained.
Trauma insurance can support those choices.
Take Action then Sleep Easy
I don’t advocate dwelling on what could go wrong and the consequences if it does. But I also don’t advocate putting your head in the sand and not thinking about or planning for it.
This is how I recommend we deal with such potential speed bumps:
Become aware of the possibility
Acknowledge the true likelihood of occurrence
Investigate and consider the potential consequences
Implement an appropriate safety net
Rest easy knowing you have protection
Don’t assume you can’t afford insurance. It’s often much cheaper than you think – especially once you properly consider the true cost of no protection.
Call me or e-mail me now for a no obligation discussion and quote about the investment in trauma insurance for your safety net.
The economic down turn and publicised retrenchments may have caused your mind to wonder “how will I cope if I lose my job?” Whether or not you are facing the potential of losing your job I recommend you seriously ask yourself “how long could I last on zero income?”
If life pulls the plug on your income
will you go down the drain?
The economic down turn and publicised retrenchments may have caused your mind to wonder “how will I cope if I lose my job?” Maybe the answer has stressed you.
Whether or not you are facing the potential of losing your job I recommend you seriously ask yourself “how long could I last on zero income?”
Situations that could create zero income
It is much more likely than you think. Your income could drop to zero as a result of:
Exasperation (“I can’t take this job/work any more”)
Exasperation is one cause not to be lightly dismissed. What proportion of people do you know who are working within their passion, in a role and environment that fulfils them? Are you? Would you like the freedom to change and pursue your passion?
Tools to help you cope with zero income
The best tool to give you the ability to easily manage either of the above causes is to have already amassed enough assets and/or passive income.
If you are not yet financially free then consider implementing these other tools until you are.
How much do you cost to run each month?
If you take the amount of your liquid savings (such as cash) and divide it by your monthly expenses how long will it last?
How long before you fall behind in your loan repayments and start negatively impacting on your credit rating?
One valuable tool for all scenarios is to build up several months, sometimes a year or two of liquid savings. Some of the savings will be in cash or cash-like accounts, some may be in highly traded shares or managed funds.
How much you need in liquid savings depends on you and the choices you’d like to be free to make. At the very least I suggest having three months supply or more.
Insurance, especially income protection
In 2007, 62% of bankruptcies in the USA were medically related. “Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance.” Forty percent of these bankrupts lost income due to the illness or injury. (Source: “Medical Bankruptcy in the United States, 2007: Results of a National Study”. Himmelstein et al.)
Private health insurance alone will not help you survive a serious illness or injury. The type of insurance that covers your ability to earn an income is called income protection insurance. It pays you a regular monthly amount to replace up to 75% of your income.
If you don’t have income protection then I highly recommend that you act. Plus the premium is tax deductible – so purchasing a policy now could save you tax this year.
One other type of insurance to consider is Total & Permanent Disability (TPD), which pays a lump sum amount. You probably have some in your superannuation but do you have enough? Most people don’t even have enough to repay their mortgage and give them the security of a roof over their head.
If I was seriously ill or injured the last thing I would want is the stress of being kicked out of my home. If you too don’t want that possibility then either get adequately insured or win lotto division one this week.
To ensure you can easily cope with a loss of income:
Build liquid savings
Purchase income protection insurance
Create flexible wealth
Become clear on your needs and your cost to run
I can help you with all of the above:
Cash flow coaching to build liquid savings
Selecting an insurer who will actually pay a claim
Building wealth for lifestyle freedom
Call me now on 1300 669 100 to book your first, complimentary appointment.
When you’re fighting fit and rarely see a doctor it can be hard to imagine ever needing insurance.
Watch this true story of David Blakeway, a middle-age professional who suddenly suffered an aneurism. David
describes his surgery, time in hospital and how his Total & Permanent Disability (TPD) claim allowed him to ‘put his life back together again‘.
Insurers are nasty and will do their absolute best to deny a claim so what’s the point of having insurance – right? Wrong!
During the last financial year 98% of all Australian personal insurance claims were paid. And of the 2% that were initially rejected a further third were later paid as a result of internal review at the insurer. This data shows that the “insurance industry is very much in the business of paying claims”, according to the Insurance Ombudsmen Service.
Maybe it is time to reassess your beliefs about insurance and consider it a valuable tool in creating a safety net under your lifestyle.
According to research released by AXA yesterday “Australians are amongst the most carefree and optimistic nations in the world when it comes to life risks.”
Optimism is a great thing but is our attitude based on fact or based on a desire to avoid thinking about that which makes us uncomfortable? The research suggests that it is the latter. (Download the 2007 AXA Protection Report)
Preparation is better than regret.
I am not advocating dwelling on what could go wrong.; that’ll just lead to a miserable outlook on life. I am a big advocate of rational analysis of risk and consequences and ensuring that safety nets are in place. Think and act then get on with enjoying life.
So if you don’t think you need insurance I ask you on what basis have you made that assessment?
Have you consider the facts about the likelihood of you not being able to work for an extended period of time due to accident or illness? In my experience people greatly underestimate the likelihood leading to a falsely based “it won’t happen to me” attitude.
Have you properly considered the consequences if it did happen? Consider the true impact on your life and your family’s life if income did not come in for months even years. Do you really want to lose your lifestyle? “She’ll be right mate” is the attitude that comes form underestimating the consequences – but will you really be all right?
If the likelihood is high enough and/or the consequence unbearable enough then create a safety net under your lifestyle by considering insurance.