Beyond children: safeguarding the future
With your house paid off, the children grown up and your retirement savings on target, you could be lulled into a false sense of security that you no longer need personal insurance.
If you or your partner were to die, then little may change in your financial situation. But what would happen if one of your adult children had an accident and needed care for the rest of their lives?
If your adult child is not insured, then you might find that all you have worked for over the years is whittled away by the many costs associated with assisting in their care.
After all, whatever their age, they are still your children and you will always want the best for them, be it the best care, the best medical treatment and/or a refit of their home to accommodate any new needs.
But at the same time, you are entitled to enjoy your retirement rather than have a substantial amount of your retirement savings redirected into helping your child.
Taking out insurance in your child’s name could be a solution as it would enable them to enjoy a reasonable standard of living should they become permanently disabled as a result of an accident or illness.
You could either make the payments on their behalf by owning the policy, with a view to transferring the policy to them at a later date, or simply encourage them to have their own cover. Your children may also not be aware that they can hold cover within super, which won’t affect their day-to-day cash flow.
Of course, many super policies automatically carry Term Life and Total and Permanent Disability (TPD) insurance, but this cover may not be enough. Rice Warner Actuaries estimate that life insurance cover within super is on average only 20 per cent of what is needed.1
Start a conversation
As with all things, it starts with having a conversation with your children to help them understand the value of having personal insurance cover.
With more adult children living at home, it is also a good idea to have a conversation with your financial adviser about your existing insurance arrangements to determine whether you and your family are adequately covered.
Key benefits
One of the key benefits of taking out personal insurance at a younger age is premiums are generally cheaper.2 They do increase with age – known as ‘stepped premiums’, however other options such as ‘level premiums’ exist whereby premiums commence at a higher rate but remain stable over time. Level premiums are generally more cost effective over the long term.
Another benefit of taking out insurance when you are younger is that insurance policies are generally guaranteed to be renewable. This means once a policy is in place, the insurer is obliged to renew it every year unless you say otherwise. So should your child develop minor health complications or an illness later in life, the insurer cannot refuse cover. Neither can they increase the premiums (called a ‘loading’). Unfortunately, many adult children delay taking out insurance until they have dependents of their own, or significant financial obligations like a mortgage. Minor health complications can lead to the imposition of a loading or in some instances denial of cover altogether. This is more of a reason to encourage adult children to consider taking out insurance early on.
Case study
John and Susie were in their early 60s and looking forward to a retirement filled with holidays and the opportunity to pursue their personal interests.
They had two children, Fiona, 34, who was married with two children and Ben, aged 28, who was single and still living at home. Fiona and her husband had already realised the value of personal insurance, however Ben, on the other hand, could not see the point of having insurance.
One day Ben was involved in an accident when he dived into a shallow river. He ended up with quadriplegia, needing constant daily care and a home modified to cater for his needs.
John and Susie had worked hard all their lives to ensure they could enjoy their retirement but realised they would now have to dig into their savings to help with Ben’s costs.
Had Ben been covered by personal insurance, both parents and child would have had a better chance at achieving financial freedom.
(1) http://www.lifewise.org.au/facts-research
(2) https://www.canstar.com.au/life-insurance/cost-of-life-insurance/
