Top 10 tips for your financial back-up plan

It’s natural to procrastinate over a daunting task, but the bottom line for any financial plan is how well it provides for the protection of you and your family if the worst happens. These tips will help you identify the key elements your plan should include to get the right cover at the right price.

How much is enough life insurance?
When it comes to insuring your life, working out how much cover you should have may seem like a very subjective question, but there are certainly some guidelines to follow.

If, for example, the family breadwinner was suddenly taken out of the picture, how much would the family need to invest to replace their income and how much capital would you need from an insurance payout to fund that investment?

You may also want to have additional cover amounts to pay out a mortgage, cover specific emergencies or situations, or fund special purposes, such as a children’s education fund.

Are you insuring your greatest asset?
Do a quick mental calculation of your annual income multiplied by the number of working years you have left before retirement. The answer is the amount you potentially risk if you don’t have income protection to cover you against sickness and accident.

You can generally insure up to 75 per cent of your gross income and you can tailor cover with a “waiting period” that ties in with your sick leave entitlements, to keep premiums to a minimum.

How do you "bridge the gap" between life cover and income protection?
If you really want to protect your lifestyle against the threat of major diseases such as a heart attack, stroke, or cancer, then why not consider trauma cover? You can insure yourself for a lump sum that is payable upon diagnosis of a range of medical conditions. You can then use this cover to fund a lifestyle change, an extended recuperation holiday, pay off debts to de-stress your life — the choice is yours.

Are you protected from a fate worse than death?
Financially speaking, a total and permanent disablement can be a fate worse than death. You could completely and permanently lose your ability to earn income, but on top of that you may incur even greater expense burdens related to your condition, such as home renovations for wheelchair access, special vehicles, and expensive medical treatments. To protect against this financial threat, you can attach lump sum total and permanent disablement cover on your life insurance plan.

Will the cover in your super fund be enough?
Relying on your super alone to take care of your insurance needs can be a shaky strategy. Will it be enough cover to give you the level of protection you need? Will you be able to continue coverage if you leave your employer? If not, will you still be insurable if you want to take out cover privately?

Your financial planner can help you answer these questions and complement your work super cover with personal insurance plans.

It’s not all about the breadwinner
A full-time homemaker in a family will also need to be protected, in case something happens to them. Lump sum life insurance cover on their life can be used to fund the cost of home help or even replace the breadwinner’s income if the breadwinner wants the flexibility to leave work and take care of children.

Don’t compromise on quality
Not all insurance plans are the same — especially when it comes to income protection and trauma insurances. Benefit definitions and supplementary benefit inclusions can make thousands of dollars of difference when it comes to claim time, so consult a financial planner to ensure you have quality cover at the right price. When it comes to personal insurance, value is far more important than cost.

What about the children?
Did you know that you can even insure children against premature death? It may not be a pleasant thought, but the harsh reality is that there will be significant expense if a child was to die.

You are also ensuring that they will have the option in future to convert their cover to their own personal insurance when they reach adulthood, thus avoiding any insurability issues that may emerge at that time.

Have a review system in place
Cover needs can fluctuate dramatically at different stages of life, so you could suddenly find yourself dangerously under-insured or wastefully over-insured. An annual review program with a qualified financial planner will help keep your plan relevant to your needs and potentially save you real dollars.

Are you paying too much?
Using a financial planner to help with your protection program gives you the benefit of their inside knowledge on a range of insurers. They can save you the hassle of comparing plans so you can achieve the most economical solution.

No single insurer will be cheapest for everybody at every age, so the expertise of someone who understands the market is invaluable for sourcing the best cover at the best price.

What are your top protection priorities for insurance? Share your thoughts below.

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