How do you choose personal insurances?
In our last blog post we discussed why you need personal insurance. This week we look at how to determine which insurances you should have and how much cover you need.
Choosing your insurances.
When considering insurances you need to look at what the impact would be on you and your family if a medical condition prevents you from working or if you were to die prematurely. It is also necessary to determine what you can afford and what your priorities and life circumstances are.
Step 1: Assess your circumstances
The first thing to look at when you choose personal insurances is your personal circumstances.
- Do you have a mortgage or other large financial commitments?
- A non-working spouse?
- Kids? And how old are they?
- A business?
- Other family or friends you support?
- Would your home require modification if you were confined to a wheelchair?
- Do you live far away from potential medical treatment?
Ideally the payout from your personal insurances will cover your living expenses in the event that something were to happen to you. This means that you need to have a reasonable idea of what your current cost of living is.
Make sure you include housing costs, schooling, and regular ongoing expenses. There are plenty of online templates for calculating your budget or current clients can use the tool in their My Prosperity account.
These are the minimum things to consider. By speaking with an adviser at MJS, we can complete a comprehensive check list with you to ensure that all aspects of your financial situation are considered.
Step 2: What kinds of insurance do you need?
The answer to this question will be different for everyone. It will depend on your stage of life and level of your assets. Income protection for example only pays out 75% of your pre-disability income until you reach retirement age. You may need a policy that also pays a lump sum so that you and your partner are not left financially disadvantaged in retirement.
You may already have life insurance included in your superannuation policy. But is it enough to pay off a large mortgage, car loans and also provide long-term support for your family in the event that you were to die?
Step 3: What level of insurance do you need?
The price of insurance is dependent on a number of factors. This includes your age and general health, the level of cover (or how much the policy will pay out), waiting periods and what conditions are included in the cover. There are many different insurance companies out there offering similar products. But not all policies are equal.
To determine what level of cover you require you need to balance the potential risk with the potential costs. Also, many of the cheap personal insurances that are advertised on day time TV appear cheap for a reason. We have seen situations where people have taken out “cheap” insurance policies, without obtaining proper advice, and come claim time they found that the medical condition they suffered was not covered.
A couple with a mortgage and young children, might need a larger life insurance policy than someone 10 years away from retirement. Someone over 55 years of age is more likely to have a trauma claim than someone in their 30’s, but if you wait until you are in your 50’s to consider this, you may find yourself uninsurable or the cover may simply be unaffordable. Like most things, early planning is essential to get the best outcome.
Our recommendation
Because everyone’s circumstances are different there is no one size fits all approach to insurance. A licensed financial planner can go through these steps with you, which makes it easier to decide what to do.
If you would like to make an appointment to discuss your personal insurances please contact us.