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.
Do you love your pets so much they are considered family members?
How far would you go if your pet got sick?
Fellow financial educator Scott Pape, The Barefoot Investor, loves his dog Buffett. Recently Buffett was bitten by a tiger snake and required urgent medical treatment costing $5,000. Read Scott’s story here.
In the article Scott notes: “so long as you buy the right policy, pet insurance is a smart investment. The yearly cost to cover your pet for treatment of illness or injury ranges from $250 to $350.”
For that amount of money Scott says you can get around $12,000 of cover.
Many pet lovers commenting on Scott’s blog and Facebook page considered that amount of money easily justifiable for a pet they consider to be a family member.
Protect your human family members first
But I wonder how many of those same people baulk at spending money to protect the lifestyle of their human family members? And in most cases you can get much higher cover for the $250 p.a. premium.
For example I just completed a recommendation for a 30-something client who can get $105,000 of top-notch trauma insurance for the same premium – just $250 per year.
So if your pet gets seriously ill you’ll only get $12,000 and still have a $500 excess hit you. Yet, if YOU get seriously ill you could receive around $100,000 (and no excess). Now that’s value for money!
And did you know that for around $50 per year you can get $50,000 of trauma cover for your children? I’m sure you would do whatever you can to help your sick child, just as you would for the beloved family pet. Give yourself more treatment choices by considering child trauma cover as an add-on to your own trauma insurance.
So the next time you get bleary eyed over the thought of something happening to your beloved pet, spare a thought for how to protect yourself from the lifestyle impact of you, your spouse or child getting sick.
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.
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.