You may have life cover in super, but will it be enough?

by Steve Nicholas, Financial Adviser

It is estimated that you may need $1 million or more to protect your family in the event of your death, and yet if you are relying on life insurance offered through super, the benefit may be as little as $100,000 to $200,0001.

When you consider the average Australian home loan is $382,2002, the default life insurance benefit offered by your super fund may not be enough to clear your home loan, let alone enable your spouse and children to maintain their current lifestyle.

Is it time you checked whether your life cover would be enough to support your loved ones if the worst were to happen?

What would happen to your family if you were to become seriously ill, permanently disabled or even pass away? While it may be uncomfortable to think about, the financial protection of your family may depend on it.

A key question to ask yourself is how much your family would need to live on if your income suddenly stopped. You might be surprised to learn just how much you spend on living expenses.

According to the Household Expenditure Measure (HEM), the average monthly living expenses for an Australian family of four is $5,3783. These expenses include groceries, utilities, phone, public transport/car and entertainment.

Significantly, the HEM figure doesn’t take into account mortgage repayments or rent, and as noted, the average Australian home loan in February 2018 was $382,2002. If your family couldn’t maintain living expenses and mortgage payments, how would they manage?

Personal insurances are designed to provide financial security for you and your family for events such as serious injury or illness, loss of ability to earn, total and permanent disablement or even death. It’s not enough, however, to simply have personal insurance in place.

You need to examine the detail of your policies to be as confident as possible that the events for which you are insured and the amounts for which you are covered would be adequate to take care of your family. This is particularly the case if your insurance is provided through your superannuation fund or through your employer’s default super fund (such as MySuper) where the expected benefit from life insurance may be just $100,000 to $200,0001.

The broad term of ‘life insurance’ usually covers four different types of cover.

Depending on your circumstances, you may need one or more of the following to properly protect your family:

Life cover, also known as ‘term life insurance’ or ‘death cover’, pays a set amount of money when you die. The money will go to the people you nominate as beneficiaries within your policy, or to your estate.

Total and permanent disablement (TPD) cover pays a lump sum to assist with rehabilitation and living costs if you are totally and permanently disabled and unable to return to work. TPD is commonly bundled with life cover.

Trauma cover provides a benefit in the event you are diagnosed with a specified illness or injury. These policies cover major illnesses or injuries that would have a significant impact on your life, such as cancer, heart attack or a stroke. Trauma cover is also referred to as ‘critical illness cover’ or ‘recovery insurance4.

Income protection usually pays up to 75% of your income in the event of you being unable to work due to illness or injury, until you are able to return to work.

Your first step…

Your first step in protecting your family is to review your current insurance cover. I invite you to complete our 5 Minute Financial Health Check. This very quick ‘check-up’ offers a worthwhile overview of your financial well-being, including your personal insurances.

The statistics on underinsurance for Australians are alarming and highlight the importance of being adequately protected. Please take action to review your existing insurances and encourage those you love – family, friends, business partners and colleagues – to seek advice for financially protecting themselves and their family.

Here are more compelling facts:

One in three of us will be affected by an accident or illness which will require time away from work for more than three months5.

The top three reasons for mortgage default include illness or involuntary unemployment and a death in the family6.

It’s estimated that almost a third of Australian households would struggle to find $1,000 if they faced an emergency7.

Please contact me today on 07 3007 2007 or snicholas@stratusfinancialgroup.com.au to find out more about the insurances you need to protect your family.

Related reading:

Is your Insurance really covering you?
Insurance Under Superannuation – Beware of Knowing A Little Bit But Not Knowing Enough

1 Review of default group insurance in superannuation – September 2017 Page 27  https://home.kpmg.com/au/en/home/insights/2017/09/default-group-insurance-superannuation-review.html
http://www.ausstats.abs.gov.au/ausstats/meisubs.nsf/0/E7E42E9F3DD21674CA25826C00114460/$File/56090_february%202018.pdf
3 https://www.homeloanexperts.com.au/mortgage-calculators/living-expenses-calculator The Household Expenditure Measure (HEM) is used by the CBA and others to help assess an applicant’s borrowing capability.
4 https://www.moneysmart.gov.au/insurance/life-insurance
5 https://www.finder.com.au/press-release-may-2016-rainy-day-savings
6 https://www.canstar.com.au/home-loans/biggest-causes-of-mortgage-default
7 https://www.finder.com.au/press-release-may-2016-rainy-day-savings

At Stratus Financial Group, we help families, professionals, executives, business owners and retirees manage their complex financial affairs and coordinate their professional advisers. 

Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This information is of a general nature only, and neither represents nor is intended to be personal advice on any particular matter. Stratus Financial Group strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.

Taxation outcomes are illustrative only. Always confirm your tax position with a registered tax agent.