You have insurance cover in your superannuation right? You probably think you’re adequately covered, yet if something were to happen to you, you might be in for an unpleasant surprise – and by then it might be too late.
I met a new client recently who was in quite a state of distress. Maryanne is 38 and a stay-at-home mum with three children all under the age of 10. She explained that her husband, Simon, had been killed in a car accident.
Simon had done the right thing by his wife and kids – he’d taken out life insurance through his superannuation.
Unfortunately however, Simon had not sought professional advice. He’d guesstimated how much cover he might need with the result that the insurance payout wasn’t nearly adequate. Of course Maryanne received Simon’s superannuation as well, but as he was only 40, the accumulated value was not substantial.
One of our clients referred Maryanne to me for advice about managing her affairs. She was actively looking for work but in the meantime was forced to live off the proceeds of Simon’s insurance and super – which included repaying her mortgage.
Sadly, Maryanne’s story is familiar. According to Rice Warner, more than 70% of Australians hold life insurance policies through their superannuation funds. Despite this, under-insurance is a huge problem in Australia.
Perhaps it’s because many people don’t seek professional advice before taking out cover, thinking whatever their fund offers will be appropriate.
Of course some insurance is better than no insurance, and insurance in super is easy and convenient to set up and pay for. But it comes with a couple of points to be aware of and this is where professional advice is invaluable.
Firstly, a portion of your super contributions are used to pay the insurance premium. Unless you’ve done the sums, you may not realise that you’re not contributing as much to your retirement savings as you believe.
Your insurances must be regularly reviewed just like other financial affairs. Your family grows: review your Will, your insurances, etc. Upsize your house and mortgage: review, review, review! And – I can’t stress this enough –seek advice from a professional who understands your personal circumstances.
I often have this conversation with my clients; after we do the maths, many are surprised by the cover they actually need. Even a partner who doesn’t earn an income should be covered, particularly where dependent children are involved.
Naturally, the more cover you have, the higher the premium, but I’m pretty sure Maryanne would have preferred a higher payout in lieu of monthly restaurant dinners.
In contrast to Maryanne, I received a call from Mark, a client whose wife, Suzy, 43, had recently died from a brain aneurism. Some years back I’d arranged a full suite of insurance cover for both Suzy and Mark, in and outside their super.
Mark claimed on Suzy’s life insurance. He paid off the mortgage, credit card and car loan, and can afford a part-time nanny to help with their two children. Losing Suzy devastated her family but the loss of her income hasn’t impacted their finances.
Even to me, the contrast between Mark’s situation and Maryanne’s is profound. But the good news is Maryanne has found a job and I helped her to create a realistic budget and restructure her mortgage. It will take time, but things are looking up.