Life Insurance Case Study
Joe, mid 40’s is a father, husband and primary breadwinner for his family. His wife Jane, works part time to allow her to be able to look after the home and 2 kids. Both living a healthy active lifestyle and live on the lower north shore. They have a mortgage in the high 800’s and recently purchased a new car and paid school fees for a further 6 years.
After having some abdominal pain, Joe consulted his doctor who scheduled a routing exam.
Unfortunately, this identified a large growth in his intestine. After taking a biopsy it was discovered to be a highly aggressive tumour and had already metastasised and spread to other organs. His prognosis was only a number of months.
Luckily Joe had the foresight to put in place a suitable insurance portfolio and had it not been for this, Jane would not be able to afford to pay her mortgage. She would likely have had to sell her home and look for work to provide for the family. She would have had to reconsider where her children go to school and certainly change her lifestyle.
Joe’s life insurance policy provided a benefit that was able to pay down the mortgage to a manageable level. Jane was able to set aside enough funds to provide for their kids’ education and she will continue to receive a supplementary payment on a regular basis to provide for their day to day living needs.
Why is it a non-negotiable?
The figures are in, and only 11% of mortgage holders aged 20-49 have any form of loan protection should their income suddenly cease due to illness, injury or death. This raises the question: is a lack of information or fear of unaffordability contributing to a low level of life insurance around Australia?
So what is life insurance and what are the benefits?
- Life insurance provides the security of covering your home loan and other ongoing costs if the unfortunate were to happen. It ensures your family and loved ones aren’t left with the burden of having to repay your mortgage in the event of death and provides peace of mind and protection of your financial obligations.
- Life insurance can be held personally or within superannuation funds. The benefit inside super is it assists with managing cash flow and your super fund can pay the premiums.
- Policies are more cost effective than most people think and can be structured in different ways depending on your situation
- Once a policy is accepted you can be covered until age 99 as long as you pay the premiums and there is no need to report future medical events to the insurer.
- Cover can be automatically increased each year to keep up with inflation and also at key events such as birth of a child, new mortgage, etc.
What about cost?
Perhaps the greatest concern for individuals when contemplating life insurance is knowing how much it will cost. The price you pay for a life insurance policy depends on a number of factors including:
- The level of cover (should be at least the total of your mortgage)
- Your age, health and lifestyle status
- Generally, the younger you are, the cheaper your policy premiums are likely to be and often you’ll be able to find a policy that offers very good value for your needs
There are many things an average household can live without, but for those who have a mortgage or those considering purchasing their first property, life insurance is certainly not one of them. You never know when the unthinkable may happen. Be proactive in protecting your family – take the time to talk to a mortgage broker about your best options and they can point you in the right direction to find a qualified financial planner.