Plan for the unexpected now

We all hope that bad things won’t happen to us, but what if they did? These people held the same belief until...

Jordan started his own business servicing computers after working for a major company for many years. At age 38, he was enjoying the freedom and control it gave him. Unfortunately his car collided with a truck on the way to see a client and Jordan suffered a severe whiplash injury. He couldn’t work for two months and the loss of income has made life hard for his young family. He didn’t think to arrange income protection insurance to replace the workers’ compensation cover he’d had with his former employer.

By their late 40s, James and Mel had worked hard to reduce their mortgage and used some of the equity in their home for a loan to buy an investment unit. It was tenanted and had the potential for long-term capital growth. Sadly, James died suddenly from a stroke. On a reduced income Mel couldn’t afford to keep paying the interest on the investment loan. The unit had to be sold quickly at a loss. They didn’t think to increase James’s life insurance when they borrowed for the unit.

At 42, Sara is a successful business owner and prides herself in managing her personal finances well. She has a diversified portfolio of property and shares. Last year she contracted breast cancer and her work was disrupted with tests and hospital treatment for five months. She has now recovered but the medical bills made a severe dent in her finances so she was forced to sell a big chunk of her share portfolio at short notice. Sara didn’t know that trauma insurance would have paid her a lump sum if she was diagnosed with a critical illness.

Three important lessons can be learned from these cases.

Firstly, the unexpected can happen to anyone.

Secondly, take the time to review your insurance arrangements at least once every year. If there are changes in your circumstances – new job, new loans, family changes, etc – arrange a meeting with your insurance adviser.

Thirdly, talk to an expert. There are many different choices of insurance and it pays to have a specialist analyse your needs and find the most cost-effective solution for your circumstances.

Review your insurance policies

The last few years have been tough for insurance companies. Poor investment markets and rising claims have squeezed their profitability. As many people have discovered, premiums on most types of policies have increased. Many insurance companies are now also tougher on claims assessment.

Each time you review your insurance, check your coverage and make sure you have told the insurer all of the information they need to know. The last thing you need when making a claim is to discover that you’re not covered or you didn’t fully disclose the facts.

Checklist

• Does your income protection policy still reflect the income you are currently earning?

• Will your house insurance pay out enough to rebuild your house if it is destroyed?

• Will your life insurance pay off all your current debts and be able to support your dependants if you can’t work?

• Has your car been modified in any way that could affect your policy?

• Have you recently installed security devices or extra locking systems on your home that could reduce your premium?

• Have you bought a $10,000 home theatre and forgotten to add it to your contents policy?

• Did you know that undertaking “high risk activities” such as skydiving or hang-gliding could void your life insurance policies?

This list is by no means complete but it’s enough to get you thinking. Is it time to arrange a review with your adviser for a complete analysis of your insurance needs?