Why do I need to be covered?

Logic implies that all risks that ARE coverable SHOULD be covered, right? So why are we the most personally underinsured country possibly on the face of the earth?

I put a great deal of time and effort into compiling mountainous paperwork for my clients to achieve financial independence and success. (Okay, my investment methodology mirrors that of Warren E Buffett and the billionaire investors- bordering on sloth).

This can all come undone in a heartbeat (or lack thereof in some cases).

The good old “she’ll be right mate” just doesn’t cut it when you are focused on achieving your personal financial goals or attaining the most personal financial benefit out of your business or venture.

For example, a client couple of mine (we’ll call them Keith and Cheryl), upon recommendation took out various insurance covers, including a trauma policy as part of a wealth accumulation and tax minimisation strategy by their ‘intelligent’ adviser in 1999.

Two years later at the age of 42 Keith had a heart attack and required a quadruple bypass surgery operation (pretty serious stuff). His insurance company accepted his claim under the trauma policy and he was paid $180,000 for his troubles.

What did he do with the payment? Well, he did squander it to a small degree, bought a new Holden V8, but he also paid off a significant portion of the mortgage, covered some lost wages and made an investment in commercial property with the rest. The lump sum payment allowed this couple to continue with their financial plans and goals unabated.

After a long battle trying keeping their food manufacturing business afloat the company they had started went into administration in early 2007. Coupled with some unfortunate timing, at the age of 46, Cheryl was diagnosed with breast cancer that had invaded her lymph nodes.

This time it looked like they were going to lose the house AND the commercial property investment to the bank.

The insurance claim was submitted and accepted and the insurance company could not wait to pay out the sum of her trauma insurance – a total of $200,000.

Of course, this meant that they were able to keep their house and managed to hang on to their commercial investment property.

Had it not been for their respective investments in their policies things would have gone south in a very big way for them. By the way, both are doing well indeed.

A slight divergence here, here’s another way to look at an income protection policy. If you’re 30 years old, covering a wage, salary, directors fees, etc of say, for example $100,000 for 75% (maximum in most cases) and you intend to retire at age 65 and decide not to procure yourself a IP policy that covers you until 65, and you become ill long-term, you are likely to miss out on $2,625,000 million dollars in potential payments (75% x $100,000 = $75,000 x 35 years until 65.)

It doesn’t cost the earth and premiums are generally tax deductible.

It’s not just for the more mature souls out there; I have heard numerous cases of 20- and 30-something’s having a stroke, or long-term illness that if they’d had a wealth protection policy in place things would have worked out very differently for them.

Something to think about…

Nick Christian is a Financial Adviser and planner and authorised representative of Millennium3 Financial Services.

The views and opinions expressed within this letter are those of the author and do not necessarily reflect those of Millennium3 Financial Services Pty Ltd.