To protect your family, Campbell Korff from Yellow Brick Road suggests that you ask yourself the uncomfortable ‘what if’ questions.

The life insurance industry has been in the spotlight recently. The commission structures paid to brokers and advisers by insurers have been accused of causing excessive ‘churning’ (moving clients to a new insurer unnecessarily), because a large portion of the commission was paid on issuance of the policy. While the restructuring of these commissions to a longer term and flatter structure was right, in my view, it missed an opportunity to address the much bigger issue of why Australians remain chronically under-insured.

The regulators and insurers only have themselves to blame in this regard. For too long life insurance was ‘sold’ to people using aggressive marketing techniques by networks of agents and thinly qualified advisers rewarded by very large commissions. The innate Aussie suspicion of the salesman and the big institution operated to thwart these efforts and has placed the insurance industry near used cars and real estate as the professions least loved.

The problem is that there is now a huge number of people that live with the risk of being wiped out financially every day but are either totally oblivious to it or choose to ignore it. Others believe they are covered but have inadequate or inappropriate cover.

Personal risk management is a key component of everyone’s financial affairs. It is a complicated area and you should seek expert advice from an independent professional, however, the following summarises some of the key principals:

• Your future income is your biggest asset, so before you insure your boat, car or even your house, insure yourself. Even for people on modest incomes, you may need to invest an insurance lump sum of over $1million to replace your future income.
• Many people think ‘it’ will never happen to them. Google the statistics. Odds are ‘it’ will before you retire. More importantly, think about the downside for your family if ‘it’ does and you are not covered.
• Ask yourself the ‘What if’ questions:

‘What if something happens to my partner’s health and he/she:

1. a) dies
2. b) can’t work for 6 months
3. c) can’t work ever again
4. d) needs emergency surgery, how would the family cope financially?’

Make sure your partner does the same.

• There are four types of personal risk insurance: life, total permanent disability, income protection and trauma cover. Each is designed to help you address these ‘What if’ questions. Getting the balance right requires a technical understanding of each and your personal circumstances and risk tolerance. This is your adviser’s job.
• Like most things, with insurance you get what you pay for. If it’s cheap, there’s a reason: it doesn’t cover as much.
• The ‘default’ insurance cover provided with most industry superannuation funds is rarely adequate for a family with children and debt.
• If you have existing insurance, think carefully before switching to a new insurer. If you have suffered health problems or changed your lifestyle, the new insurer may not provide the same breadth of cover as your existing one.
• Always pay your premiums on time and never cancel a policy before a replacement has issued.
  

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  If you want to contact Campbell Korff of  Yellow Brick Road Ballina go to: www.ybr.com.au/Branches/Ballina

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