Everybody Loves a Good Poll!! - Life Insurance.... et el

Following a recent post, I'm in the process of assessing our life insurance requirements and wanting to increase the cover from the basic cover held within our industry funds. Up until recently I've haven't considered it worthwhile but moving into my early 40's with a young family and a few IP's it's definitely time....albeit a little morbid.
We've had an SMSF up and running nicely for about 5 years and have also kept the minimum balance in the industry funds to keep the cover. The plan is to can the industry funds and provide new cover paid by the SMSF.

Our SMSF is with eSuperfund which is perfect for our requirements. They have a partnership with AIA Australia to provide insurance for members but they do not provide advice, you apply online for what you want/need.

I've googled SMSF forums and cant find much information on what cover is typical. The online calculators seem to suggest we need endless amounts of insurance...Life insurance, TPD, Trauma, Income.... but I'm not keen on spending $6k/pa on insurance premiums.

Very interested to find out what types and how much cover people here have? Also does it fully cover all of your debts if the worst were to happen or just a significant portion.

 

Interesting thing to look at - basing your insurance needs on others. What's appropriate coverage for yourself is completely unique to your circumstances, requirements, current liabilities and lifestyle expectations. A single stock handler in a supermarket will have a completely different profile and needs vs a neurosurgeon with 2mil in debts and a stay at home wife with three kids attending private school.

Why not get specific advice from an adviser who can look at your overall situation and give you options from multiple providers, than a mono-provider like esuperfund? Generally this will provide little to no net cost addition to you, but you gain more options and specific advice from a professional.

 

We have zero life, TPD, trauma and income insurance.

Independent recommendation from our financial planner and our accountant based on our situation.

Not saying that is appropriate to your situation, @Shady.

 

Thanks for the constructive advice Corey. It's like asking people for their opinion on property investment or mortgages!!!
What Insurance cover do you have?
Mortgage Broker/ Insurance Broker...they're all just going to flog their product

 

I agree with Corey, it varies person to person. What are your goals with getting this type of insurance?

For me, I opted for occupation specific income protection only. Ultimately, my goal was to replace a portion of my income so if I am unable to work for the rest of my life then I will at least be able to support myself and remain relatively independent. Just as importantly, it brings me a level of comfort knowing that I have this cover. I hope I will never have to use it!

On a side note, I switched off my income protection through super as it would replace my income for 2 years maximum. I'm not worried if something catastrophic happens and I can't work for 2 years, I'm worried about not being able to work for 40 years!

 

Yea nah

 

None currently, but seriously considering it for when we have children.

 

Stop bothering about life insurance when I got to 60 and transitioned to semi retirement.

I've got access to my super and own my own house... so why should I pay for insurance?

 

For me, the Golden Rule with insurance is:

If you CAN'T afford to lose it, then you CAN afford to insure it.
​

That is why everyone has different insurance needs.

 

Fully medically underwritten Life, TPD, IP & trauma - you'd be crazy not to (unless you're at a life stage that isn't required or otherwise covered). I've seen enough claims to know what happens to those who haven't got their bases covered.

 

My cover for everything is set to the minimum. I figure i've got enough that I don't need to rely on my income, the house would be paid off if I sell 1 IP and i've got no dependents.
The home can be income generating too.

 

When you are retired, you may not need to do this. We had the same thoughts until we saw the error of our ways in retirement. We cancelled our life, TPD, trauma and IP insurances.

This is why I like Super so much, especially SMSF. When a partner retires, one must pay that person a pension, minimum of 4% of their Super balance. If both retire, one must pay a pension, minimum of 4% of both their Super balances.

When one partner dies, their Super can be inherited by the survivor. So, the total funds in Super and the pension remains the same but one would expect living expenses to decrease.

So, if a couple can fund their debt in retirement when both are alive, it should be easier to do if one dies.

That is why we seriously reviewed our situation with our financial planner and our accountant. Both recommended cancellation. It took us a while to get on the same page

Hopefully, my post above explains that this is not/may not be necessary in retirement, especially with a good Super balance. In fact, there could be more 'food on the table' if one partner dies.

That is not the way most IP policies work. You must have an 'agreed-value' policy which pays out a benefit agreed to reflect your income at the start of the policy.

Most IP policies are 'indemnify value' policies which verify your income at the time of making a claim and adjust your benefit accordingly. Zero wages/salary means zero benefit.

You may want to double check your policy wording.

Once you are both fully retired, you may want to reconsider this as well.

In our case, as we age, our property portfolio will become more and more cashflow positive. With the use of IP loans and Offset accounts, one can manipulate one's taxable income and hence, how much tax one has to pay.

This is one very powerful lever one loses if one pays down one's debt. I like being able to pull multiple levers.

Also, as we age, I expect it will become more and more difficult to borrow money. With fully chocked Offset accounts, one does not need to ask the banks for money (for a major reno, for a holiday, for a new car, ...). One just withdraws the money from an Offset account and the interest charged is tax deductible (for loans used for IPs).

As you know, I am not a financial planner nor an accountant. All if the above is NOT advice but it is what we are doing (and have so for over 6 years).

Just something to think about.

 

Just some food for thought. I'm not looking for my wife to 'hit the jackpot' if I go (she doesn't need anymore reasons to cause an 'accident') but I do want my wife not have to worry about finances for the next 10years at least while the kids are at school. Hence why I'm leaning towards around $1mil in cover for Life insurance.
Being in my early 40's there's reasonable chance one of us will get/have/suffer a heat attack or the big C and be off work for 3/6/12months so I'd feel comfortable paying for a reasonable amount of cover for this.
I'm not leaning towards the TPD and am struggling with Income insurance.

 

I think you might have overestimated my financial situation.

We are comfortable in retirement but we aren't FRCPs !!!!

 

FCRP???
Fellow of the Royal College of Physicians

 

I have Life and TPD through Super. At a payout level to cover PPOR debt only. Should I pass away my partner will have a debt free house and CF+ IP portfolio. She still may need to work a couple of days a week for "play" money. But there will be enough cashflow left to put food on the table. I do not have income protection insurance, I have buffers for this.

 

We base our insurance on how much debt we have .

Four senario's we've looked at

Me , Wife and Both , or disability . We base the amount on the assumption that we would have to make changes to our life style as the cost of enough insurance to maintain current level of income would be prohibative

Wife has a smallish amount , enough that I can reorganize life as she does most of paper work .
Me largish amount , so wife has enough to pay down debt and enough time to sell a property to reorganize moving forwards .

Combined , so the kids don't have a large portfolio , with large debt which they have no way of servicing any short fall , or proving serviceability to banks . They can either pay down debt and keep portfolio , or liquidate and take the money , or combination .

We have PPOR and weekender so have some flexibility to sell one or both and further downsize if required .

Once Brisbane has boomed , plan is to have good income from property portfolio and cancel much of the insurance .

Currently our insurance costs over 30 K post tax so not having would make a significant change to cash flow .

Cliff