KPMG conducted a report commissioned by the government in 2014 to determine if every day working Australians are adequately protecting themselves against the risks of death, disability, sickness and injury. The report’s findings were quite alarming, with 35% of the working population not even have any cover against the risk of being disabled for long periods of time or replacing their income at all.
In almost all circumstances, a working person’s income is their greatest resource available. Even a modest, part-time worker earning a flat rate $30,000 p.a. is a $600,000 asset over 20 years of work, not including what you can do with that money in that period of time.
Having seen many people in my time working in financial advice go through horrendous circumstances, I know up close and personal how important this issue is and how impactful not planning for this can be.
So what needs to be considered? Here at Mentor we have 2 general approaches to figuring out what your needs might be in the event of significant sickness or injury:
- Plan to be able to be as close to financially the same (e.g. completely replace income)
- Plan to be able to cover your necessary costs that you expect in life
For the first option, this is a method of insuring you to the point that you receive enough assets in replacement of the income you would have earned if an insurable event occurs, to replace your working life. For example, if you were never able to work again, what insurance or investments would we need to establish in order to replace your remaining years of work? For some, this rings nicely as a legacy of providing for the family what you always did and always wanted to.
The alternative is to figure out all of the expenses you are likely to need to be providing for in a major health event. This breaks it down into several key aspects:
- Paying debts
- Providing for household bills
- Paying off children’s education or other bequests
- Medical and/or care costs that might arise
- Alterations to the home in the event of disability
Following through what is important to you is the first step, and may come to an understanding of what, in certain circumstances you would want to happen. From there, an understanding of what is possible can be navigated for you to work out your priorities for you and your family.
At the end of the day, your circumstances will be different to others, and there are no “silver bullets” when it comes to this. At Mentor we can help guide you through these difficult decisions to ensure the appropriate structures are put in place in order to ensure your priorities are met even in these potential unfortunate circumstances.