Job change checklist

Changing jobs is often an exciting time of life. It can also be a busy time. Following is a checklist of important items to promptly address to ensure you keep your financial well-being on track.

Changing jobs is often an exciting time of life. It can also be a busy time.

Following is a checklist of important items to promptly address to ensure you keep your financial well-being on track.

Cash Flow

  • If your pay date will change then consider resetting the automatic transfers that support your smart budgeting techniques
  • Revisit your budget to accommodate changes in remuneration. If you’re going to be paid more also see the wealth creation tips below.

Use free online calculators, like those from the ATO, to help you work out your new net (after-tax) pay.

Wealth Creation

All pay rises are terrific opportunities to accelerate your wealth creation. I suggest you put at least half of your pay rise towards a combination of the following:

  • Higher loan repayments.
  • Increased allocation to long term investment. For example you could boost your salary sacrifice to superannuation, which will soften the tax blow on your pay rise whilst making you wealthier.

Plan in advance and be ready to adjust your automatic transfers as soon as you start your new job.

Employer share plans

Do you have an employer share loan you need to repay upon leaving employment? If so, a common way to repay the loan is to sell some or all of the shares. If you don’t have a broker then read this article to discover how to sell shares without a broker.

Superannuation Fund

Don’t:

  • Blindly nominate your previous employer’s fund to receive contributions ‘just to keep things easy’. Your new employer may have a cracking deal on offer.
  • Blindly accept the default fund offered by your new employer. It may be a shocker compared to your old fund.
  • Blindly roll your old fund into your new employer’s fund. When you rollover you automatically lose your insurance cover. “So what?“, you ask. Well almost all Australians don’t have enough cover, so odds are you probably need to keep what you already have.

Do:

  • Promptly investigate what happens to your balance and linked insurance when you leave your employer. Do this before your last day in your old job.
    • Is the balance automatically rolled to a new ‘holding’ fund within a certain number of days?
    • Is some or all of the insurance automatically cancelled? If so, can you apply to have it continued? (If a continuation option is available you usually have around 30 or 45 days to apply.)
  • Complete a comparison of your new employer’s fund to your previous fund to ascertain which is better for you. I recommend you also consider some off-the-shelf funds in that comparison.

Employer Funded Insurance

One great thing about employer group insurance policies such as group salary continuance is that you probably didn’t need to disclose anything about your health to get it. So you can potentially be a basket case and still be covered.
The older you get the more likely that is.

Keeping that cover is therefore a golden opportunity.

Group insurance policies often have continuation options that allow you to retain cover under a personally owned policy without medical underwriting. However you have to apply quickly – usually within 30 or 45 days of leaving your employer.

In my experience it helps to contact HR before your last day. They’ll usually refer you to the adviser appointed to the group policy who will then guide you through the process.

Call your adviser

If you have previously worked with a financial planner then a job change is one of those moments you should proactively contact them. Changes in income can trigger tweaking of your strategy. Also job changes sometimes occur as a result of the natural evolution of what you want in life. Your financial well-being strategy needs to evolve with you.

Your financial planner will be able to guide you through all of the above and alert you to anything else you should think of.

Four types of life insurance

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.

Tragedy strikes around 20 percent of working families

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.