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The Devil is in the Detail

The facts about Insurance

No one thinks about getting sick. You might not need it now, but insurance is all about protection. What’s your Plan B?

Don’t ignore the facts. The bean counters tell us that before you before you turn 65, there’s a one in three chance you’ll need to be off work for three months because of an illness or injury. Tragically, every single day 18 Australian families lose a parent, according to The Lifewise Center (*sourced from The Barefoot Investor). This is why you need insurance.

Insurance in general often gets put on the back burner for two main reasons: ‘It’s not something that’s fun to talk about, so it often gets put off longer than it should,’ explains James Mousa from concept financial advisor company, Life Sumo. ‘And many times, people don’t get great insurance advice. In fact, coming out of school, most people aren’t getting any education on insurance at all!

“Life Sumo places a focus on offering financial advice and workshops to millennials and school leavers – it’s their future. The ability to earn an income is your most valuable asset, so planning for the unexpected should be the number one concern. Nobody knows when tragedy could strike – an accident or illness could see you unable to work and your income cut off.”

With that in mind, we asked James to talk us through a step-by-step guide explaining the protection of your most important asset – you.

Personal protection – why is insurance important?

Having insurance is a lot like carrying an umbrella with you at all times: Most of the time it feels a little cumbersome, but when it rains, boy are you happy. “Insurance offers a promise of financial support in the future”, says James. “We understand insurance is low on the list of priorities, however studies are showing that heart attacks (for example) are not just old people issues.

“Getting insurance as life gets on comes with potholes – age-related illness, pre-existing conditions, family commitments. It’s far better to arrange protection while you’re younger and healthier, then you won’t have to worry about it retrospectively. Great care is needed to ensure too much is not paid and that premiums are actually providing the cover you need. At Life Sumo, we don’t ‘sell policies’ – we set them up and advise people on how best to manage them.”

What’s the difference between Income Protection insurance and Total and Permanent Disability (TPD) insurance?

“Income protection replaces some of your income for an agreed period of time if you are unable to work due to injury or sickness. Premiums can be cheaper if there is a longer waiting period – say three months”, explains James. “But you’ll need to ensure you have adequate funds to cover that time if you are unable to work and have to wait for the cover to kick in.

“For example, we had a client who needed to claim IP insurance on his first day of a new job – earlier that day, he scratched his eye putting in a contact lens and had to claim on partial blindness. No one plans for that.

“Total and Permanent Disability (TPD) Insurance is exactly what is says on the packet – you are never returning to work. This is catastrophic injury. On the upside, these policies are not mutually exclusive – it’s entirely possible to have both and receive cover from both claims if required.”

What are the biggest mistakes people make with insurance?

“Firstly, relying on the insurance that’s in superannuation is not a strategy – it generally won’t be enough, it hasn’t been underwritten and there’s no analysis to find out if you’re even eligible.

“Secondly, choosing the right policy. Stepped premiums are the most common policy – they’re calculated on your age, with premiums generally increasing with your age. With Level premiums, you pay more in the beginning, but the premium costs average out over time so that you can end up saving money. Usually a level premium remains constant until the age of 65, when it reverts to a stepped premium as your risks increase.

“Life Sumo works with you on which policy is best for your stage of life.”

When should cover be reviewed?

“Policies should be reviewed as income and personal circumstances change to make sure the cover is updated and comprehensive,” advises James. “The key issues are whether the new policy will provide the same level of cover and is that the amount required to meet current and future needs. We recommend reviewing after a major ‘lifestyle event’ – a new mortgage, marrying or having a baby.”

Ultimately, choosing any insurance policy is a big decision. Knowing that there are alternatives can be comforting. Make sure you take the time to learn all of the options that you have beforehand, so you can make the best decision to safeguard your lifestyle.


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