As a Financial Adviser, my clients and I work on a Plan A, but it’s important we know what our Plan B is.
Protecting assets is a key component to sound financial planning and can go a long way to safeguarding our ability to fund lifestyle expenses if the unexpected happens.
It would be ideal to have the capacity to self-insure. That is, have sufficient capital reserves available to continue to meet lifestyle expenses. Though in many cases, this is only achievable closer to our twilight years, once we are debt free and have access to superannuation.
Until then, the risk of funding lifestyle expenses through injury or illness is transferred to an insurer through an insurance policy. The premiums are generally calculated, in most part, by a mathematical equation that assesses the likelihood of a claim. As we age and this likelihood increases, so do the premiums.
Understanding risk, and calculating the cost of that risk over the price of the premium is where it can get confusing.
I recently had two separate clients contact me regarding their premiums, expressing a desire to either cancel or lower their benefit amount in an effort to reduce the price. My first response was to take the policy to market and assess the competitiveness of the premiums with other insurers. The policies were competitively priced, so there was no benefit to be gained in switching insurers.
Price however, is just one dimension. When reviewing insurance, it’s important to cover debts and to provide for the cost of lifestyle expenses. Through my engagement with both clients, we agreed the core requirement for the cover still existed and so reducing or cancelling the insurance would leave the family in a worse position if a claimable event occurred.
The cost of not having cover was more expensive than the price to have it.
In a bitter twist of fate, in both cases, the client was diagnosed with cancer only weeks after our review. They are both dramatic examples, but demonstrate how vitally important it is to talk to a professional Adviser before making any insurance decisions,
Fortunately the claims process was managed seamlessly for both and resulted in a full payout to the clients. This prompt payment afforded my clients the time to concentrate on recovering and spending time with family rather than worry about paying for their treatment.
The message here is obvious. I’d encourage you to think about your circumstances and ask yourself:
• What cover do you currently have in place?
• Can you recall why you took the cover you have today?
• Have your circumstances changed since you first took out the policy?
• When did you last speak to an Adviser to review your needs?
How do you go about your Risk Management Plan? Have you had a similar experience? Please feel free to share your thoughts and comments below.