Don’t be Caught Underinsured

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UnderinsuranceAustralians are notoriously underinsured, a serious problem facing the entire country.

Although it’s a subject few are comfortable discussing, when an unexpected illness, injury, or death of a loved one strikes and your personal insurance is insufficient to cover all the related expenses, the emotional damage compounded by the financial implications can range from stressful to catastrophic.

Only four percent of Australia’s total population with dependent children have adequate insurance to protect themselves and their family. One group of studies published by the Investment and Financial Services Association (IFSA) on claims paid from 13 life insurance companies found that the average payouts were significantly lower than the financial needs created by the losses incurred.

Few Australians have the financial resources to cover the expenses of life’s unexpected hazards, and yet too many don’t have a plan in place that will protect their financial security and lifestyle in the event that the income earner suddenly becomes unable to work due to illness, injury or death.

Multicover insurance – that is, coverage that includes life insurance, income protection insurance, trauma insurance (also called critical illness insurance), and disability insurance – is not a priority for many Australian households, and yet having multicover insurance in place is fundamental to good financial planning.

In an economy that has many struggling to make ends meet, insurance is often considered an unnecessary expense, as many Australians take a “she’ll be right” approach to planning ahead.  The truth is, multicover insurance is vital to financial security, but unfortunately for many, this realization isn’t met until it’s too late.

Financial planning is not just for the wealthy. It is an important process that identifies our financial goals and long term objectives, and maps out how we intend to achieve those goals and objectives.  Part of sensible financial planning is identifying those vehicles of protection, wealth creation, life milestones and plans for contingencies. Once in place, an individual’s financial plan, including multicover insurance, should be periodically revised to match their needs at each life stage, adjusted to shed elements no longer needed while incorporating new requirements.

How does one determine the level of multicover insurance they need in order to make sure their family and lifestyle are safe when the unthinkable happens?  In order to compare multicover insurance plans, it’s important to know what coverage you need to suit the needs of yourself and your family.

For instance, a working couple in their mid 30’s with two young children may need to plan for benefits 10 to 13 times the value of their taxable earnings in case their earnings were suddenly cut off due to death or disability. Therefore, if you earn a full-time salary of $50,000, this translates to $500,000 to $600,000 in life insurance coverage in order to protect your family’s lifestyle if you were to lose your life.

Parents in their mid 40’s who work full time, earning $50,000 per year, with older children at home may need life insurance coverage in the $300,000 to $450,000 range. This varies and your personal situation and needs should be discussed with a licensed insurance specialist.

So many people live their lives with the attitude that ‘it won’t happen to me,” until something happens. This reflects a serious lack of awareness of the effects an unexpected death, injury or illness can have on a family.  Too few Australians have taken the time to learn about the actual costs of multicover insurance, often because they mistakenly perceive it to be prohibitively expensive. Compounding the problem is the perception that insurance is too complicated, and the basic discomfort most people feel when it comes to discussing loss and mortality. They simply choose not to think about it.

Trauma insurance pays out a lump sum of money in the event of a major illness or condition such as a heart attack, cancer, stroke, loss of a limb, paralysis or other medical event described within the policy. The average age of Australians experiencing traumatic medical conditions is a young 42 years. With trauma insurance in place, you can count on financial coverage through the recovery period for yourself and your family. Trauma insurance pays out upon receiving a diagnosis, or within a week or two of surviving an injury or illness that has rendered you disabled, depending on the provider.

When a medical event leads to total and permanent disability, disability insurance will provide a lump sum benefit of up to $5 million to help you meet your financial responsibilities. Disability coverage can also help with whatever adjustments you need to make in order to cope with circumstances resulting from the disability, such as rehabilitation, therapy, and any special equipment you may need.

Income protection insurance is designed to protect your income in the event that you are unable to work due to an illness or injury. Consider the impact a loss of your income would have on your family if you suddenly became unable to work. Income protection insurance alleviates the worry over paying bills and putting food on the table.

Multicover insurance is tailored to each individual and family’s specific needs, and should be reviewed regularly with a licensed insurance specialist to be sure it continues to meet your needs.

Australians who are underinsured are exposed to serious risks. Multicover insurance can’t prevent tragedy from happening. What it can do is provide financial support such that you and your family will survive if you can no longer work. Your assets are better protected, your living costs will be easier to meet, and your family will be spared the agony that comes when the loss or injury of a loved one is made worse by financial turmoil.

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