'it Won't Happen To Me' Keeps Personal Insurance In Dark

The Age

Saturday July 14, 2007

George Mileski - George Mileski is a certified financial planner with Mercer Wealth Solutions

WEALTH protection is growing in popularity thanks to record levels of personal debt and prosperity.

Our wealth protection habits have improved. Plan for Life data for the year to December 2006 reveals almost 16 per cent growth in new insurance premium sales. During that period, Australian life offices received $4.9 billion in premiums but also made $3.6 billion in policy payments.

The Investment and Financial Services Association says people know how important their mortgages and other debts have been in helping them build wealth.

Consumers insure assets to protect themselves from losing them. Buying a house goes hand-in-hand with home and contents insurance. Buying a car automatically makes you think of car insurance. After all, why work hard to buy things and then risk losing them, with no way to replace them?

But, when it comes to personal insurance many are underinsured. The 2006 Mercer Financial Literacy and Retirement Study of 802 working Australians found 63 per cent of people who had a mortgage did not hold income protection insurance. More than half of all respondents appeared confused about whether they had life insurance or not.

Is personal insurance necessary? What if your job isn't dangerous, you consider yourself fit and healthy? Well, it's not so much the office paper cuts you need to worry about. Consider these statistics:

Heart, stroke and vascular diseases kill 50,294 Australians annually (37.6 per cent of all deaths). Cancer affects one in three, and kills more than 36,000 people annually. And disability? One in three of us will have up to three months off work during our lifetime due to disability. One in two over 30 years of age will suffer asthma, cancer, heart disease, diabetes, injury, mental health or muscular/skeletal conditions.

Without good health, you may not be able to earn an income, meet repayments or provide for loved ones. You may also struggle to keep growing your assets, for example contributing to managed funds, shares, investment property or even your superannuation.

The average new home loan in Victoria, according to the Real Estate Institute of Australia's December 2006 quarterly report, is $235,236 with monthly repayments of $1792. The average personal debt in Australia is $14,000. If you have children but are not sure how much it would cost to raise a child to age 20, the answer (depending on your circumstances) is $448,000.

These statistics can help you think about common risks and how they may apply to you. Importantly, they highlight how your health and finances work together.

If you don't have a plan covering your costs if your health fails, it's worth preparing one. Generally, Government benefits such as Sickness Allowance will help, but a single person will only receive $424.30 per fortnight and a couple is entitled to $382.80 per fortnight (each) so this money may be enough to cover your needs.

Regarding wealth protection options in detail, life insurance pays a lump sum to your beneficiaries or to your estate when you die. It can be used for funeral or legal expenses and to provide for dependants - eliminating debt or generating replacement income. For a great number, life insurance is provided through their super fund and you can top it up if it's not enough.

Total and permanent disability insurance pays a lump sum if you're totally and permanently disabled. It can be used for medical bills or renovating a home to meet a disabled person's needs. Some super funds provide a TPD benefit for members - again, check if it's enough.

Trauma insurance pays a lump sum if you're diagnosed with a specific serious medical illness. There are about 30 to 40 serious medical conditions that may be covered under a modern trauma policy, including cancer, stroke and heart attack.

Income protection insurance provides a monthly payment when you're unable to work because of injury or illness. A payment can be anywhere up to 75 per cent of your salary and may be paid for the duration of your incapacity or for a period specified when you apply. A waiting period may be involved and cover may not be available to people over age 65.

Speak with a qualified financial adviser to determine the type of insurance you may need and, importantly, to calculate the level of cover appropriate for your situation. Next time you renew or apply for car and home insurance, remember to check your personal insurance.

George Mileski is a certified financial planner with Mercer Wealth Solutions.

© 2007 The Age

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