Reviewing your insurance policies
Insurance is an important facet of most people’s financial plan, as it is the safety net that ensures financial stability when things go wrong. Life is difficult enough if somebody passes away, or a loved one suffers a serious illness or accident, so insurance can play an important role to minimise financial stress where possible.
One of the tasks we quite often undertake for clients is to review their personal insurance policies. These include life insurance, income protection insurance, total and permanent disablement insurance, and trauma insurance. In a lot of cases, clients have taken out a suite of insurance policies a number of years prior, and these may not have been reviewed for quite some time. It is often only when we summarise the different policies, that a client gets a clear picture of exactly what cover they have, and what the cost of that cover is.
It is not uncommon for some people in their late 40’s or early 50’s to be paying upwards of $20,000 per annum for their personal insurance cover. The cost might have only been a fraction of this amount when the client took out their policies, but as insurance premiums normally increase with age, the total cost can become very expensive over time. With most clients having a portion of the total cost coming out of their business account, another portion paid out of their superannuation fund, and perhaps the rest out of their bank account or credit card, the total cost of all of this cover can quite often go unnoticed.
As most people with insurance policies are well aware, the cost of insurance generally increases every year as we get older. Insurers normally increase the amount of cover each year as well, called indexation, which again increases the overall cost of the policy. In addition to all of this, most insurers have also pushed through quite substantial premium increases over the past 2 to 3 years. These factors combined have resulted in some clients paying quite a substantial sum in insurance premiums each year, which in some cases they are not fully aware of.
We recommend that clients review their insurances at least every 2 years. The first step we normally take with clients is to work out exactly how much insurance cover they really need. We generally will all need a substantial amount of cover when we have a large mortgage and perhaps young children. However as we get older, we pay down our mortgage, build up our investments and superannuation, and as our children get closer to adulthood, our need for personal insurances should normally decrease.
This means that as we get into our 40’s and 50’s, we can hopefully start to reduce our level of cover each year or two. This is important, as once people get into their late 40’s and older, the cost of life insurance, income protection insurance, trauma insurance etc., increases exponentially each year. Making amendments to your current policies, such as removing optional extras, and changing waiting periods, can also make a big difference in relation to the cost of cover, without jeopardising the important cover that these policies provide.
Insurance is a complex business, and we believe that it is important for clients to obtain professional advice in this area. This advice should extend beyond just obtaining insurance cover. It should extend to reviewing a clients need for insurance cover on a regular basis, reviewing the overall cost of this cover, as well as assisting in the event of a claim.
Addison Partners Financial Planning can assist you to review your current levels of insurance and can assist you to determine the best level of cover for you and your family. Please contact Roy Massey on 4919 5500 or rmassey@addisonpartners.com.au for more information or to book in an initial free consultation.