What would you do if your child suddenly and unexpectedly became seriously ill?

If something happened to Sophie or Isaac I would want my wife and I to be able to quit work immediately and be by their side, full–time.

I wouldn’t want one of us to have to work just to ensure the mortgage and bills get paid.

I wouldn’t want to be dependent upon the generosity of family, friends and the community to get by.

I would want to be able to afford top health care.

I would want to stay in our home. The comfort and familiarity will be an essential aid to recovery, for us and the ill child. Moving home is an added stress we won’t want.

But with most families dependent on their income, where will the money come from to provide the freedom to make those choices?

Introducing children’s critical illness (trauma) insurance

Children’s critical illness insurance is also known as children’s trauma insurance.

Child critical illness insurance pays you (the parent or guardian) a lump-sum on the occurrence of one of a number of conditions, similar to how your own critical illness (trauma) policy operates. You choose how to use the lump-sum.

What’s covered?

Most policies cover over 20 different illnesses including the ones you’d commonly think of such as:

• Cancer
• Paralysis, including paraplegia and quadriplegia
• Loss of limbs
• Blindness, deafness or loss of speech
• Severe burns
• Coma
• Death and terminal illness

As with all insurance if the severity of the illness meets the policy criteria then you will be paid a benefit. With these policies the benefit will be paid as a lump-sum.

How do you get children’s critical illness insurance?

Child critical illness insurance is an optional add-on to the parent’s insurance policy. It can be an option to life, TPD or trauma insurance. So even if you don’t have your own trauma insurance policy you may be able to add child trauma insurance to your death or TPD policy.

Usually the child needs to be at least 2 years of age before you can add them to your policy, though I’ve seen policies with entry ages up to age 5. Even if your child is not yet that old when you buy your policy you can add the child trauma option when they are old enough (which is exactly what I did for my two children.)

Many policies are now offering maximum cover up to $200,000.

How much does it cost?

Premiums range between $200 and $300 per year per child for the sum insured of $200,000. You can choose to insure for a lower amount to fit within your budget.

At around $5 per week per child I consider that value-for-money peace of mind. Much more valuable than my car insurance.

Why you should consider children’s critical illness insurance

It doesn’t matter if you believe the likelihood of serious illness is low. The life and financial consequence to your family would be severe.

It is the severity of the consequence that makes the risk high enough to warrant managing the risk through insurance.

Get the protection then get on with enjoying your family time with peace of mind.

You may also enjoy these related articles:

1. Four types of life insurance
2. Women: a great little reminder from a hot guy
3. Life Saving Advice

And after you’ve finished checking your breasts check if you have protection from the financial consequences of a serious illness like breast cancer.

The key tool is trauma insurance, which pays you a lump sum on diagnosis.

You can use the lump sum to:

• Help fund out-of-pocket costs for medical treatment
• Give your partner time off work to be with you knowing you can keep food on the table
• Take time off work to smell the roses

You may also enjoy these related articles:

1. Four types of life insurance
2. Life Saving Advice
3. Insurers never pay, right? Wrong!

This year the Australian Federal Police have published an excellent survey to test how well you protect yourself against identity crime. The survey is a quick 15 questions and quite insightful. I recommend you take the survey now to test how protected you are.

Identity theft can cost you a fortune in lost money and time. This week take a few moments to assess how risky your behaviour is and read my article on how to prevent ID theft. Then of course take action!

You may also enjoy these related articles:

1. Protect yourself from identity theft
2. Is this a scam?

In truth no-one knows what will happen.

The great news is that the actions which prepare you to survive a massive change also position you to thrive if instead a boom arrives. So irrespective of your personal forecast it is worth implementing these suggestions.

What could happen

If massive change arrives it probably won’t be pretty. You may experience some of the following:

• You lose your income, maybe for an extended period.
• Just to keep food on the table you have to sell assets, maybe including your home, cheaper than what you paid for them.
• Your loved ones lose their income and assets and move in with you.
• Your investment values go sideways or even down.

It’s all about cash flow

To keep food on the table and a roof over your head you need cash flow. Your best bet to keep money flowing in is to keep your job.

Even in the Great Depression seventy per cent of Australian men remained employed, so if you play your cards right there’s a good chance you’ll stay employed.

To protect your employment income you need to maintain expertise of value to your employer, your industry and to the country.

One way to achieve this is through ongoing professional development. Another way is by being more productive – work smarter, not longer.

For some people though, reskilling and reinvention will be necessary. This will likely apply to those working in retail and other consumer discretionary industries. Don’t despair – these days changing careers is the new black.

Contain your expenses

Borrowing to the max seemed normal while wages and asset prices grew steadily. But it’s now evident many financial houses were built on unsuitable foundations. To survive and thrive avoid over-committing to large debt repayments that are reliant upon two incomes.

Make like a squirrel

It’s time to make like a squirrel and save up your nuts for winter. Build a reserve of emergency funds you can use to fund your expenses if the worst happens.

The best emergency fund is cash you can access within about 1 to 2 days’ notice. The cash can take a number of forms including:

• Actual cash in a high interest online bank account
• Available redraw on your mortgage because you are way ahead in your repayments
• Withdrawal capacity in a personal line of credit secured against your home

Don’t rely solely on your investments

You may be thinking your investments are your backup plan.

If massive world change arrives it may be the worst time to sell your investments. In fact for lumpy assets like property you may not even be able to find a buyer. I know people who during the Global Financial Crisis couldn’t find buyers even after cutting prices.

In a “crisis” companies may slash dividends to preserve cash, leaving you empty handed.

And if people start bunking together to save costs your investment property may be without tenants. Or you may have to slash rents just to get a tenant.

So don’t rely on living off your investments if you lose your job for an extended period.

When the sun shines

Of course doomsday may never arrive and instead we’ll re-enter years of prosperity.

In that case, having invested in your professional development you’ll be in demand and may experience significant pay increases.

As a diligent debt repayer you won’t care as much when interest rates go up (to curb inflation) because you’ll have much less, if any debt.

Couple the higher income with contained expenses and you’ll have plenty of surplus income to invest in funding your early and luxurious retirement.

Chill out

Follow this timeless, common sense approach and you can confidently keep a “she’ll be right mate” attitude no matter what happens.

You may also enjoy these related articles:

1. Time for tax planning
2. How to reduce your tax
3. An example of how DIY is costly

In fact I had some scammers copy my e-mail newsletter template to send their spam. So their message looked very legitimate.

The Australian regulator, ASIC have compiled a very useful list of companies you should not deal with. It includes a list of official sounding overseas investment regulators and exchanges that are actually fake.

If you’ve been contacted with an offer that seems attractive:

1. Get all of their contact details including registered business name, website address, physical address and phone number.
2. Ask them to post a hard copy of their Product Disclosure Statement (PDS) and Financial Services Guide (FSG). Don’t give them your e-mail address.
3. Insist you will do nothing right now and instead will call them back after considering the offer.
4. Check their business name  and ABN are legitimate using the ABN Lookup tool and ASIC registers
5. Check the ASIC list of companies you should not deal with
6. Report the scam to ASIC

Scammers will of course provide very serious resistance to steps 1 through 3 so that alone could be a big indicator to go no further.

I also recommend you read my article about protecting yourself from identity theft.

You may also enjoy these related articles:

1. Protect yourself from identity theft
2. National Identity Fraud Awareness Week

But it only takes a momentary lapse in concentration or a ‘brain freeze’ moment and injuries or even death can occur to smart, cautious people.

Following are some statistics I come across of crazy ways that people got injured or even killed.

3 Australians die each year testing if a 9V battery works on their tongue.

71% of people over the age of 50 are injured due to opening supermarket packaging.

43 Australians were admitted to casualty departments in the last 2 years from attempting to open beer bottles with their teeth or eye socket.

142 Australians were injured since 1998 from trying on a brand new shirt & not taking out the pins first.

18 Australians were seriously burned in 1988 from putting on jumpers while having a lit cigarette in their mouth.

31 Australians have died since 1996 from watering the Christmas tree while the fairy lights are still plugged-in.

19 Australians have died in the last 3 years by eating Christmas decorations they believed were chocolate.

Hospitals reported 4 broken arms last year after cracker pulling incidents.

58 Australians are injured each year by using sharp knives instead of screwdrivers.

8 Australians have cracked their skull since 1997 after falling asleep (passing out) while throwing up into the toilet.

The above stats are courtesy of CommInsure.

If you are mostly healthy and careful but, like me, are the occasional victim of brain freeze then an accident-only insurance policy may be worth considering as a cost-effective way to protect your lifestyle.

You may also enjoy these related articles:

1. Centrelink won’t save you
2. Understanding Private Health Insurance
3. What to do if massive world change is coming

Don’t worry – I’m not dragging out my dusty crystal ball and predicting an imminent recession.

Which is why now is the perfect time to make plans for if you do lose your job at some time in the future.

Waiting until gloom is upon us often leaves not enough time to squirrel away your chestnuts.

That is what happened pre-GFC. People had been:

• Borrowing up to their eyeballs expecting continuing pay rises and asset price increases to keep them cosy
• Spending everything they earned and more

Then the GFC hit and many people were stressed about how they would survive if they were retrenched. Many who did lose their jobs struggled to survive and had to rely on selling assets and the generosity of others.

That kind of financial and personal stress wreaks havoc on your quality of life and relationships.

But it doesn’t need to be that way. When you have your financial affairs in order losing your job can be just a blip on the journey.

How to prepare for retrenchment season

Last night in my DIY Wealth Creation course we talked about risk management. Two ways to manage risks are to minimise the likelihood and to minimise the consequences.

Emergency savings minimise the financial consequences

If you have plenty of easily accessible savings then you can use these to keep food on the table and avoid the bank knocking on your door about missed mortgage repayments.

I recommend having at least three months’ worth of total expenses squirrelled away for emergencies. If in your line of work you think you could be out of work for longer before getting a job then put away more.
By total expenses I include everything: all loan repayments including credit card as well as your lifestyle expenses.

That recommendation assumes you know your expenses. So if you don’t know how much you spend then start working that out. The knowledge will both help you plan and also help you survive if misfortune strikes.

Keep the savings liquid

You need these savings easily accessible and cash is the most liquid. But if you have a home mortgage then your cash could work harder if it was reducing your loan interest. After all you don’t expect to use this amount – only if a true emergency arises.

So I recommend saving your three months’ worth of expenses and making an additional loan repayment. Then if misfortune strikes you can redraw that amount. Don’t see the available redraw and be tempted to use it for a holiday!

If you don’t have any personal debt then a high interest online savings account is a great spot. Have a separate account for emergencies than for your other savings (such as holidays).

Whilst shares and many managed funds are liquid the economic situation that may lead to your retrenchment may also be a time when you don’t want to be selling investments. So I suggest you don’t invest you emergency savings.

Professional development minimises the likelihood

You can minimise the risk of retrenchment by ensuring you are very employable.

You can do your best to ensure you are so valuable to your employer that you are one of the last to be let go.

But if your company or project closes then retrenchment may be unavoidable. In that case you want to be one of the first people snapped up by other employers.

Professional and personal development is essential in today’s world to ensure you continue to be very valuable to your employer and your industry. Is it time to brush up on your expertise or even expand it? Maybe your networking and relationship building could be polished? Those networks could help you get your next job.

Professional development also makes sense for wealth creation. It should help you increase your actively earned income, which you can then spread between increasing your lifestyle and your investment.

Don’t max yourself out

You can also minimise the consequence of losing your job by not maxing yourself out in the first place. Stress test your major lifestyle and investment decisions before committing to implement them.

For example: don’t borrow the maximum amount the banks will give you. Leave yourself a buffer both in interest rate increases and other costs.

Need help saving?

If you need help saving up for emergencies like this then talk to me about cash flow coaching.

You may also enjoy these related articles:

1. How to not lose your life savings
2. Protect your wellbeing from unemployment
3. Don’t Stress About Losing Your Job

How far would you go if your pet got sick?

Fellow financial educator Scott Pape, The Barefoot Investor, loves his dog Buffett. Recently Buffett was bitten by a tiger snake and required urgent medical treatment costing $5,000. Read Scott’s story here.

In the article Scott notes: “so long as you buy the right policy, pet insurance is a smart investment. The yearly cost to cover your pet for treatment of illness or injury ranges from $250 to $350.”

For that amount of money Scott says you can get around $12,000 of cover.

Many pet lovers commenting on Scott’s blog and Facebook page considered that amount of money easily justifiable for a pet they consider to be a family member.

Protect your human family members first

But I wonder how many of those same people baulk at spending money to protect the lifestyle of their human family members? And in most cases you can get much higher cover for the $250 p.a. premium.

For example I just completed a recommendation for a 30-something client who can get $105,000 of top-notch trauma insurance for the same premium – just $250 per year.

So if your pet gets seriously ill you’ll only get $12,000 and still have a $500 excess hit you. Yet, if YOU get seriously ill you could receive around $100,000 (and no excess). Now that’s value for money!

And did you know that for around $50 per year you can get $50,000 of trauma cover for your children? I’m sure you would do whatever you can to help your sick child, just as you would for the beloved family pet. Give yourself more treatment choices by considering child trauma cover as an add-on to your own trauma insurance.

So the next time you get bleary eyed over the thought of something happening to your beloved pet, spare a thought for how to protect yourself from the lifestyle impact of you, your spouse or child getting sick.

You may also enjoy these related articles:

1. Flood insurance

Insurance can be one tool for minimising the impact of natural disaster.

To learn more about flood insurance read this edition of Consumer Tips published by The Insurance Council of Australia.

The Herald Sun also published an easy-to-read overview of insurance cover for floods. (18 Jan 2011)

Choice also provided a flood update in to their guide on choosing home and contents insurance. It is a worthwhile read. (14 Jan 2011).

You may also enjoy these related articles:

1. Pet insurance

In researching new (small) cars I noticed that many of the modern popular features are not available in the base/lower versions of several models. You need to buy the higher version to get those features.

For example:

• Side and curtain airbags to elevate the model from a 4 to 5 star ANCAP safety rating
• Bluetooth connectivity (for your phone and/or MP3 player)
• Rear electric windows
• Cruise control

I don’t consider such features as luxurious bells and whistles. To me they should be standard based on the way many in the western world are living our lives right now.

So going for the premium version of a model doesn’t just get you sexier exterior and interior trimmings plus a more powerful stereo – things you may not really need. You need to upgrade to the premium version just to get the 5 star safety rating – a really valuable feature to all.

Similarly for personal insurance

I have noticed a similar trend in personal insurance following the recent season of product upgrades.

In the case of car buying our extensive driving experience makes us better equipped to identify and assess the value of the extra features in the premium versions of models.

Not so with personal insurance where many of us have no direct experience.

With personal insurance going for the Premier or Plus version of a policy doesn’t just get you a bunch of lovely ancillary benefits that may aid your comfort when you claim.

Increasingly I am noticing that you need the top version to get the more generous definitions of core policy terms – the terms that will affect whether you can successfully claim at all.

A disability example

For example, the definition of disability will affect whether you are considered sufficiently disabled such that you can claim under your income protection or total & permanent disability (TPD) policy. It is a core policy term and you want a generous definition that increases the scope of situations in which you could receive a benefit. A narrower definition may mean that even though you are unable to earn at full capacity you don’t receive any insurance benefit.

With some income protection and TPD policies I have noticed you need to select the Premier/Plus version to get the market-leading generous policy definition of disability.

Similarly with trauma insurance policies the top versions have the market-leading definitions for core (the most common) illnesses such as cancer, heart attack and stroke.

How do you know?

You’ll only realise this if you take the time to read the Product Disclosure Statement (PDS). You won’t realise this if you are just ringing around getting quotes and making a decision on premium price under the assumption that most products are similar.

What you should do

In the past I’ve often recommended you don’t just choose the cheapest insurer because they usually are cheaper due to being stricter with their policy terms.

Now I am extending that to explicitly recommend you don’t just choose the base/cheapest version of an insurer’s policy. The premium version may offer market leading terms for core features – a bit like the 5 star versus 4 star safety rating in cars.

Take the time to read the Product Disclosure Statement and understand the core differences between basic and premium policy versions.

And if you don’t have the knowledge and/or time to make that thorough comparison then outsource to a qualified, experienced financial planner or insurance broker. Their fee will be worth its weight in gold in ensuring you purchase a good value-for-money policy.

You may also enjoy these related articles:

1. Insurers never pay, right? Wrong!
2. Thwack! Zero income. How long will you last?
3. Four types of life insurance