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Let’s look at an example.
John and Sally are married with two young children. John is the sole income earner and Sally is a stay at home mum. In the unfortunate event that John passes away, or is unable to work due to illness or injury, you would hope there’s adequate insurance coverage to look after Sally and the kids.
So how much is enough? Let’s assume the annual cost of day-to-day expenses for a family of four is $60,000. If for example, there was no main bread winner for 15 years, a lump sump of $900,000* would be required to cover the family. Please note this example does not allow for increases in day to day expenses in line with inflation or the earnings that can be generated on a lump sum insurance payment.
Importantly, this example isn’t taking into account mortgage repayments, which on average, consumes a whopping 35.2 per cent of an Australian families’ income3! When armed with these facts, it’s confronting to know how much money is required to cover a loss of income and continue to meet a family’s day-to-day requirements.
Did you know a third of males and a quarter of women will suffer from cancer in their lifetime? 50 per cent of which will live longer than five years after diagnosis.4 |
Closing the insurance gap
Research commissioned by the Investment and Financial Services Association (IFSA) stated that only four per cent of the total population with dependent children have adequate levels of life insurance cover.5 Should you be closing the gap?
A cost-effective way to provide your family with adequate income may be by arranging insurance cover through your super fund. Obtaining insurance in this way is often cheaper than applying for cover directly from an insurance company because super funds purchase insurance on behalf of many members and, therefore, they may be able to obtain more competitive premiums. Most members are automatically provided with a default level of cover, and these may increase automatically (up to certain predetermined levels). If an individual wishes to apply for additional cover, they will need to provide health evidence. Depending on the design of your superannuation plan you may have access to one or more the following types of insurance cover:
Death cover: Death insurance cover is a lump sum amount payable in the event of your death. It can be paid to any one or more of your beneficiaries or to your legal personal representative (estate). Depending on whether the payment is made to a dependant (as defined under superannuation law) or not, it may be tax-free.
Total and Permanent Disablement (TPD): Pays you a lump sum if you are unable to work again due to a total and permanent disability.
Salary Continuance Insurance (SCI): Also known as income protection and Temporary Total Disablement (TTD), SCI will provide you with a portion of your salary each month in the event that you are temporarily unable to work due to an illness or accident. To put it into perspective, if you were to earn an annual salary of $30,000, over the duration of your working life your total income would amount to $4,000,000.6
If you wouldn’t give a second thought to insuring your car or home, you should also ensure you have adequate levels of life insurance cover. It’s important to have the peace of mind and reassurance, that if you encounter illness, injury or death, you and your family are adequately covered.
For additional information on the different types of insurance cover available or how to increase your coverage, contact a Plum Member Services Consultant on 1300 55 7586. Alternatively, to find out of you have adequate insurance cover, login to the member section of the website – www.plum.com.au and check out the Insurance gap calculator.
References
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