Life changes quickly. Your insurance needs can change just as quickly.
Think back to when you first arranged your life insurance. What did your life look like then? Perhaps you had a smaller mortgage, fewer financial commitments, younger children, a different income or no dependants at all. Since then, you may have bought or renovated a home, started a family, changed careers, taken on business responsibilities or simply seen the cost of living increase.
Yet while our circumstances regularly change, our insurance arrangements can sometimes remain untouched for years.
That raises an important question: when was the last time you checked what you are actually covered for — and whether your sums insured are still appropriate?
Underinsurance Is More Common Than You Might Think
Having insurance in place is an important first step, but simply having cover doesn’t necessarily mean you have enough.
Underinsurance occurs when the financial protection available would not be sufficient to meet the needs it was originally intended to address. A sum insured that appeared substantial five or ten years ago may look very different when measured against today’s mortgage balance, household expenses, income and family commitments.
At the other end of the spectrum are people who have little or no personal insurance protection at all.
The difficulty is that significant life events rarely arrive conveniently. Illness, injury, disability and premature death can create financial consequences at the same time a family is dealing with enormous emotional and practical challenges.
The purpose of appropriate insurance protection is to create a financial safety net before it is needed.
It’s About More Than Paying Off the Mortgage
When considering whether your level of protection remains appropriate, it can help to look beyond one large financial commitment such as the home loan.
What would happen financially if your household suddenly lost an income?
Would there be sufficient resources to meet everyday living expenses? Could debts be reduced or repaid? Would children still have access to the opportunities you had planned for them? Could your partner afford to reduce their working hours if circumstances required it?
There can also be immediate expenses associated with serious illness or injury, as well as rehabilitation costs, changes to the home, additional care and other unexpected expenses.
For business owners, there may be another layer of consideration. Your personal income may support your household, while your involvement in the business may also be critical to employees, business partners, debts and ongoing operations.
This is why determining an appropriate level of protection is rarely as simple as selecting an arbitrary dollar figure.
Your Needs Change as Your Life Changes
There are many occasions when reviewing your protection makes sense. Buying property, increasing debt, getting married, having children, changing employment, receiving a significant pay increase, starting a business or approaching retirement can all alter the amount and type of financial protection you may need.
Even without a major life event, it is worthwhile regularly reviewing your position.
If you have an ongoing relationship with a Financial Adviser, reviewing your personal insurance needs will commonly form part of your regular review process, often at least annually. This provides an opportunity to consider whether your circumstances have changed and whether the financial assumptions behind your existing protection are still appropriate.
Importantly, a review isn’t necessarily about increasing cover. As debts reduce, children become financially independent and wealth accumulates, your needs may also decrease.
The Value Is Knowing Where You Stand
Insurance is something most of us hope we will never need to rely upon.
Its real value is the confidence that comes from knowing you have considered the financial risks facing you and your family and have a strategy in place should something unexpected happen.
You don’t need to spend every day thinking about what could go wrong. But periodically asking a few simple questions can make an enormous difference:
What am I covered for? How much am I covered for? And if something happened tomorrow, would it be enough?
If you’re uncertain about the answers, speaking with your Financial Adviser can help you understand your current position, identify potential gaps and determine whether your protection remains appropriate for the life you’re living today.
Because life changes — and your financial protection should change with it.
If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.
This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.
(Feedsy Exclusive)