Why do people not insure their lives and portfolio like they would their cars?
GUEST OBSERVATION
All lenders require building insurance before a loan settles, but what about the very thing that is going to repay the loan? You!
Whilst we don't necessarily want banks enforcing borrowers to take up their insurance, as an investor or anyone that is taking on any type of debt it’s vital that you review your personal insurances (life, trauma and disability) as well as income protection.
The funny thing is people will insure their cars, boats and even pets without hesitation, but when it comes down to the bigger assets like their lives and their property portfolios, their coverage too often falls well short. As a mortgage broker, this is unnerving when I consider that more than one in five Australian families will be impacted by an tragic event in their working lives, and 95% of those families will be underinsured.
I don't speak to my clients about the specifics of insurance, but I do refer them on to my top insurance advisor for health checks. It’s scary how uninsured people are when it comes to their financial wellbeing. In fact, in any unfortunate situation that one person that is inflicted with either a temporary or permanent disability or serious illness or worst-case death; the typical family income will drop by more than half. Can you imagine how a family or a person can survive after the living expenses like food, utilities, childcare and mortgage repayments come out. Let alone further costs through medical expenses.
People will insure their cars, boats and even pets without hesitation, but when it comes down to the bigger assets like their lives and their property portfolios, their coverage too often falls well short.
It’s easy to panic when you hear all the frightening statistics and react by calling up the first company that comes up under ‘risk insurance’ in your search, but beware of the offers like those on the television promising cheap cover with one quick call. Risk insurance can be really quite complex to get right. The best way to this is to speak to a top financial planner to get you the best value for your money and be adequately covered.
As part of the finance process, now mortgage brokers need to check that you are aware of insurance and if you think you are adequately covered. Most people assume they have enough cover in the superannuation but often don't know what it exactly is when asked. It is common to think, as I used to think it myself, that when someone offered to review my insurances I was getting sold something I probably didn’t need. Though times have changed, and as an investor today your debt levels are at higher levels, you need to take this into consideration.
I have been fortunate enough to not have a client be in the position to claim under their insurance and I hope that this is the case for all my future clients. However, I have had people that I know personally that have been caught out by devastating events; if they were insured, their lives would be very different now. A family friend had a stroke at, aged only 38; he has a lovely wife and three children. He ran his own business, and their whole lives changed as he was the sole income earner with no back up plan, or adequate insurances in place. The pressure to return to work was massive, and still after five years he is still struggling with his health. It is heartbreaking.
Imagine for a moment this was you. As we forge ahead building up our investment portfolios, I feel we can sometimes take even our most basic provisions for granted. Though imagine a life where not only paying essential household expenses presented a challenge, but dreams of education or holidays needed to be shelved indefinitely.
Even if you think you are covered it never hurts to get a second opinion, especially when it comes to the most important asset - your life. A financial planner will give you a complimentary review for insurances and not charge any fees and a good time to check is always when you are applying for finance.
Life is important, not just yours, but your family’s as well. If you’re not absolutely sure you are adequately covered, it might be time to get that health check.
Michelle Coleman is an award winning finance broker and managing director at W Financial.
