What is an appropriate level of insurance one should take out for themselves, including, life, Trauma & Income Insurance? Also we are a young couple with 2 kids in our early 30's is it better to take our level premiums or stepped premium options?
Hi there, thanks for your question. It is often difficult to know levels of cover, however this is generally determined by lifestyle, level of debt, income, and if any surplus income (which with 2 kids is often difficult). With out this info I would still suggest you consider a minimum of $1m life cover, at least enough TPD cover home debt (assuming you will have Income Protection). Both Life & TPD can be structured through Super, so you should consider this as it is more tax effective and will not affect cash flow. (Keeping in mind it will effect your retirement savings). In terms of Trauma, as much as you can afford would be my suggestion. It is the more luxury type, as it is not tax effective and more expensive, but one in my experience does happen and can make a massive difference to ones recovery without upsetting the family economics.
Plenty to discuss, so feel free to ask me more questions.
Mark Butler 0418778899
Hi Bernard, thank you for your questions. Having worked with many clients in a similar situation, I understand the value and importance of getting this stuff right! In your situation the appropriate level of cover can differ significantly. Key things to consider include, how much you owe on your own home, age of your children and school/childcare requirements, income shortfalls, medical expenses, carer costs and the list goes on.
In regards to your premium options, again, this is heavily dependent the types / levels of cover you are taking out as there may also be some benefits to locking in certain insurance at level premiums due to your relatively young ages. Lump sum cover, in particular life and TPD acts in an inverse relationship to your overall wealth accumulation and debt reduction. Essentially, as you accumulate wealth and your level of debt reduces, your need for higher levels of insurances also decreases.
Personal insurance is a strategy unto its own and the most important take out from this exercise, is to understand that personal insurance needs to be just that, “personal”, because we are all different.
Happy to chat if you have any further questions.
Andrew Debono (02) 9251 5558
First of all, congrats on the recent awards! I have seen your videos everywhere mate congrats!
I am sure you come across this scenario a lot with the people you are assisting into their dream homes.
Tip #1 - I believe you should have the MINIMUM levels of cover at all times - in your example, typically the scenario that you present (young couple, early 30's, 2 kids) would be the time you needed a backup plan the most. Good news though, it is cheaper now than it is as you get older.
Tip #2 - Plan for the long term where it makes sense - this relates to your point about stepped and level premiums. In my opinion, Life/TPD cover have a reducing need (unless you have aspirations of increasing owner-occupied debt or plans to have more kids).
Trauma Insurance - as you would have seen with people who have increased their wealth substantially, it is still unlikely that they could put their hands on $250k cash quickly without having to sell assets. It is for this reason that I recommend level premiums for trauma insurance (or at least a portion of trauma cover if there is a plan to cash up in the future).
Income Protection - this is a bit more of a case by case basis. Individual circumstances (such as business owners building recurring revenue streams, mums taking maternity leave etc) have a bearing on this but typically I like a level premium for income protection until the basics are covered with a stepped premium above the basic monthly benefit required to keep the household running.
NB: Important to check whether level premium providers offer a "True Level" benefit whereby they index the original sum insured and not the indexed premium.
If they are not indexing the original sum insured, my suggestion would be to opt out of the CPI increases as the compound interest effect can negate the benefits of the level premiums (see this example - http://bit.ly/2NSCrr9)
Tip #3 - Review and Reduce - as I mentioned earlier, my goal is to hopefully get everyone to the point that they do not need the cover anymore, this means they have substantial wealth and no longer need to rely on the insurance companies.
As you can imagine, this is a fairly rare occurrence!
For most people, they get busy and never want to revisit the insurance side of things once setup. I'd suggest checking in on the cover levels every 12 months. There are some changes that are major, and others that are more insignificant. See the attached infographic for example - http://bit.ly/2JqtEZO
Tip #4 - Make sure the levels of cover you consider have a purpose - by this I mean, clear debt, provide replacement income, etc) this way, as the inputs change, the cover levels can be reviewed easily as opposed to having a specific number for each person based on age.
This makes sure the cover levels are tailored as well. If you wanted to do a quick test, I have built a tool in Facebook Messenger that will walk you through this process in less than 2 mins and give you a personalised report on how much cover you should have.
Check it out here - https://m.me/TruePrideAU
Hope this helps mate, and congrats on all the accolades!