By David Spiteri
(National Risk Manager, Centrepoint Alliance)
Hi, this is guest blogger David Spiteri here.
As regular readers may recall, Mark Teale (Tealey) recently posted about whether he was over or underinsured.
Well, being an insurance expert who works alongside the great man himself, I couldn’t resist putting pen to paper to offer some advice to my colleague.
The issue Tealey raised is common for many of us. We may have a natural instinct to favour our retirement savings balance over the need to keep paying insurance premiums. We see light at the end of the tunnel and premiums are generally at the higher end of the scale.
The case for assessment
However, given Tealey’s situation there is a real need for him to have a full risk insurance assessment. As part of this, the following questions – regarding the life and total and permanent disability insurance cover – should be asked:
• Does Tealey have any outstanding loans?
• Does Tealey have any dependants in his household?
• What if Tealey were to become totally and permanently disabled?
In Tealey’s case, he will need to consider whether, in the event of a premature death or becoming totally and permanently disabled, there will be sufficient funds in his super? If he were to become permanently disabled, would he be comfortable dipping into this pot?
A sliding scale
I would also suggest that he look at the insurance cover inside his super. Once a person reaches 60, this cover may reduce on a sliding scale to the extent that, by the age of 65, it is zero. This is why understanding the extent of insurance held within super is vital.
Income protection insurance
Tealey questioned whether he should alter his income protection policy. As before, the following should be thought about before making any changes:
• How much sick leave, annual leave, and long service leave does he have?
• Does the insured monthly benefit reflect his spending habits?
• Is his current benefit period of two years sufficient?
In my opinion, Tealey may want to consider the following:
• If Tealey was able to extend his waiting period from the current 30 days to 90 days, he would save around 40 per cent of the premium for his income protection insurance. Considering a 120 day waiting period will have little impact on the insurance premium. More importantly, depending on his policy, it may also exclude a number of attached ancillary benefits, whereas the 90 day waiting period will still keep those benefits intact.
• It is a known fact within the insurance world that if Tealey was off work for a period of two years due to a sickness or accident, it is unlikely he would be able to go back to work. Therefore, he should give consideration to extending his benefit period.
• With increasing competition between insurance products, Tealey may be eligible to extend his benefit period to age 70.
Many Australians are quick to make an assessment purely on the price that is being paid for insurance protection, without really understanding the impact of an unfortunate event. It is definitely worth seeking professional expert insurance advice before making any changes.
Would you want to risk 40 years of your superannuation savings in the later years of your working career?
I hope that helped a bit, Tealey!
To read the original blog click here