Does the insurance policy you have match your needs?
If you have been following the news, you know how important this question is to Australians today. Only recently, the Australian Securities and Investments Commission (ASIC) expressed concern over the aggressive sales tactics and enticing bonus plans employed by insurance companies. The commission warned that many Australians may be buying more insurance than they need. As a result of this revelation, many policyholders, especially those with more than one super account, now wonder whether they have too much insurance.
Do You Have Too Much Insurance?
The ASIC revelation focuses only on sales tactics and duplicate policies while overlooking one important point: No single policy can help you weather a financial storm because, if you are like most Australians, you already struggle with debt. According to the Australian Bureau of Statistics, household debt has ballooned by almost 80% within the last twelve years. And although mortgages are largely to blame for this astronomical growth, credit card debt has also been a major contributor.
With debt weighing them down, most families have no savings to fall back on when the breadwinner loses a job, falls ill, or suffers an accident. But instead of buying an insurance cover to cushion themselves during emergencies, these households do not plan for the worst.
It’s estimated that most Australians cannot maintain their lifestyle or meet their financial obligations for more than 90 days without an income. The shocking truth: Instead of being over insured, many Australians are, in fact, underinsured, despite having some sort of insurance.
How Much Insurance Do You Need?
This brings up the important question of how much cover you need. A recent Rice Warner study sought to answer this very question, starting with how many people have insurance. Because retirement funds demand a life cover for contributors, about 95% of employed Australians have life insurance of nearly $350,000 each. In addition, roughly 80% of them hold a total and permanent disability cover while approximately 33% have an income protection cover.
The study then recommends the following. If you are in your early thirties and married with kids, your life cover should be at least 8 times your income. Likewise, your total permanent disability should be 4 times your income, and your income protection, about 85%.
To know how much insurance you really need, calculate what it takes to maintain your current lifestyle. While you are at it, remember to include household expenses, mortgages, tuition fees, and your financial goals.
How much Insurance Through a Super Account Do You Need?
As the debts and household bills pile up, you may be left with only one way to get a life or a total disability cover, and that is through a super account. Although this arrangement leaves you with more money for your household expenses, it comes at a price. The insurance payments take a bite out of your super balance, leaving you with less retirement money to earn interest. So before digging into your super balance, ensure the benefits outweigh the costs.
More importantly, make sure that, your payments reduce with time. Remember, as property prices and personal debt rises, you may find yourself still in debt when you are 50 or 60. And the last thing you want is to be burdened by large payouts in your senior years.
How to Get the Most out of Your Insurance
Getting the most out of your insurance is not as hard as you think. You just have to match your insurance needs with the right policy. It’s imperative that you meet your objectives. Instead of going it alone or using online software, it’s recommended that you speak with a certified financial planner. They can objectively analyses your needs and audits your lifestyle.
Despite the questionable sales tactics used by insurance companies, you can still get the right personal insurance for you. All it takes is figuring what you need and then getting a policy to match. But to do so, you need an experienced, certified financial planner to walk you through the process. We are here to help.