Over one million working-age parents with dependents will be impacted by death, serious accident or illness.

Many people overlook personal insurance thinking tragedy will never happen to them. Then a friend or family experiences tragedy and they get a wake-up call.

The latest research released yesterday reveals that it can and probably will happen to you at some time during your working life.

Let this research be your wake-up call to review your health, wellbeing and safety nets.
Research by NATSEM for Lifewise revealed that based on 2008 statistics:

• 18 Australian families lose a working age parent every day.
• Every year 235,790 working age parents suffer a serious illness or injury
• Every year over 17,000 working age parents are forced to stop working, either permanently or for an extended period of time.

More than one in five families will be impacted by an insurable event in their working lives.

Yesterday I was given a DVD called “Living with Water” about water safety with children. It’s aimed at preventing the drowning deaths of children under age five – 300 of which have occurred since 2000. That’s just over 30 drowning deaths per year targeted by this significant, government funded initiative.

The death of a child is tragic and I agree with our focus on water safety. Yet consider the massive impact on children and families when family income is slashed by injury, illness of death. And take note that more families per day are affected by that than are affected by the drowning death of a young child.

The financial impact

It should be no surprise that the basic levels of insurance you may automatically receive with your employer superannuation are nowhere near enough.

With typical levels of insurance cover the typical family with dependants will lose around half their income if tragedy strikes, according to the research by Lifewise/NATSEM.

Could you and your family survive on half your income?

When you consider the true likelihood of an insurable event and the financial and lifestyle impact, the cost of insurance cover is very affordable protection for your family.

Contact me to discuss how much insurance cover you may need and how affordable it can be.

Related posts:

1. Life Saving Advice
2. She’ll be right mate – It won’t happen to me
3. Understanding Private Health Insurance

One of the big benefits is access to a private hospital and avoidance of lengthy public waiting lists if you ever need surgery. (Of course deep pockets also gives you such access.)

The private health system in Australia takes pressure off the public health system so the Government provides incentives and penalties to encourage you to participate.

Thirty Percent Rebate

The Australian Government currently subsidises private health insurance with a 30% rebate. In one sense that is equivalent to making the insurance ‘tax deductible’ to the vast majority of Australians.

Medicare Levy Surcharge

I’ll let the Government explain this penalty:

The Medicare Levy Surcharge is levied on Australian taxpayers who do not have private hospital cover and who earn above a certain income. The surcharge aims to encourage individuals to take out private hospital cover, and where possible, to use the private system to reduce the demand on the public system.

The surcharge is calculated at the rate of 1% of taxable income. It is in addition to the Medicare Levy of 1.5%, which is paid by most Australian taxpayers. The Medicare Levy Surcharge is imposed on individuals earning over the threshold who do not have an appropriate level of hospital insurance. The threshold is $73,000 for individuals and $146,000 for families.

You do not have to pay the surcharge if your taxable income is below the income threshold.

A key thing to understand is that for many higher income earners the cost of the surcharge is higher than the cost of the private hospital cover insurance that would enable them to avoid the surcharge. So once you earn above the threshold it is a no brainer decision to purchase hospital cover. Remember there is no obligation to choose the more expensive ancillary cover.

Learn More

To learn more about private health insurance I recommend the following websites:

• PrivateHealth.gov.au is an Australian Government website which includes a database of all policies offered by Australian health funds.
• PrivateHealth.com.au is an initiative of the Heath Insurance Association and includes some statistics and discussion of the benefits of private health insurance.

Related posts:

1. Tragedy strikes around 20 percent of working families
2. Donate It Forward Project
3. Thwack! Zero income. How long will you last?

The economic down turn and publicised retrenchments may have caused your mind to wonder “how will I cope if I lose my job?” Maybe the answer has stressed you.

Whether or not you are facing the potential of losing your job I recommend you seriously ask yourself “how long could I last on zero income?”

Situations that could create zero income

It is much more likely than you think. Your income could drop to zero as a result of:

• Retrenchment
• Injury
• Illness
• Exasperation (“I can’t take this job/work any more”)

Exasperation is one cause not to be lightly dismissed. What proportion of people do you know who are working within their passion, in a role and environment that fulfils them? Are you? Would you like the freedom to change and pursue your passion?

Tools to help you cope with zero income

The best tool to give you the ability to easily manage either of the above causes is to have already amassed enough assets and/or passive income.

If you are not yet financially free then consider implementing these other tools until you are.

Liquid savings

How much do you cost to run each month?

If you take the amount of your liquid savings (such as cash) and divide it by your monthly expenses how long will it last?

How long before you fall behind in your loan repayments and start negatively impacting on your credit rating?

One valuable tool for all scenarios is to build up several months, sometimes a year or two of liquid savings. Some of the savings will be in cash or cash-like accounts, some may be in highly traded shares or managed funds.

How much you need in liquid savings depends on you and the choices you’d like to be free to make. At the very least I suggest having three months supply or more.

Insurance, especially income protection

In 2007, 62% of bankruptcies in the USA were medically related. “Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance.” Forty percent of these bankrupts lost income due to the illness or injury.
(Source: “Medical Bankruptcy in the United States, 2007: Results of a National Study”. Himmelstein et al.)

Private health insurance alone will not help you survive a serious illness or injury. The type of insurance that covers your ability to earn an income is called income protection insurance. It pays you a regular monthly amount to replace up to 75% of your income.

If you don’t have income protection then I highly recommend that you act. Plus the premium is tax deductible – so purchasing a policy now could save you tax this year.

One other type of insurance to consider is Total & Permanent Disability (TPD), which pays a lump sum amount. You probably have some in your superannuation but do you have enough? Most people don’t even have enough to repay their mortgage and give them the security of a roof over their head.

If I was seriously ill or injured the last thing I would want is the stress of being kicked out of my home. If you too don’t want that possibility then either get adequately insured or win lotto division one this week.

Your Actions

To ensure you can easily cope with a loss of income:

• Build liquid savings
• Purchase income protection insurance
• Create flexible wealth
• Become clear on your needs and your cost to run

I can help you with all of the above:

• Cash flow coaching to build liquid savings
• Selecting an insurer who will actually pay a claim
• Building wealth for lifestyle freedom

Call me now on 1300 669 100 to book your first, complimentary appointment.

Yours in prosperity

Matt Hern CFP
Financial Educator and Adviser

(This article appeared in my free newsletter “On The Money“. You can subscribe for free here.)

Related posts:

1. Tragedy strikes around 20 percent of working families
2. Understanding Private Health Insurance
3. Life Saving Advice