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Insurance Options - Big Sky Financial Solutions

Insurance Options



Alarming statistics galore surround the topic of insurance. 70% of Australians have motor insurance. 67% have home and contents insurance. 41% have private health cover.

But Australians in general are chronically underinsured. Only 38% of us have life insurance, 20% have income protection or disability income protection and a mere 18% are covered in the event of their total and permanent disablement.

Looking at these numbers, you’d be forgiven for believing that Australians care more for their cars and material possessions than they do for the peace of mind and financial security of their families.

If you’re one of the more than 2.5 million families in Australia with dependent children living at home, you’ll know only too well how expensive it can be to raise a family. A recent AMP/Natsem study shows it costs around $450,000 for the average family to raise two children from birth to age 20. If you’re one of the growing numbers of families who choose private schools for your kids, this cost rises to just over $500,000 to age 18.

Covering debt is only half the job of insurance. The other half, depending on the type of insurance and the event triggering the claim, is making sure you or your loved ones have enough resources to live on.

Think about these scenarios…

1. Bob is a middle manager in his mid-40s, married to Margaret who has taken time out from her career to look after their 3 kids. Bob has enough life insurance to pay out the home mortgage and to pay off all credit card debt. It’s at least a start. But Bob hasn’t thought about how the family will survive day to day if he dies. OK, no more mortgage or credit card debt, but how will they afford necessities like food, education, transport, clothing etc etc? Bob’s worked hard to provide a nice lifestyle for his family with private schooling, regular holidays and the opportunity for the kids to pursue interests. Does he really want them to have to struggle just because he’s no longer around?

2. Bob suffers a serious heart attack, but survives. He’ll be off work for at least 6 months. He has enough life insurance to pay out the mortgage and credit cards as well as provide enough income when invested to give his family a reasonable lifestyle.

Which would all be fine if Bob had died. As it is, he’s unable to earn an income for at least 6 months, all the usual repayments and other expenses are still coming in and now he also has substantial medical expenses to cope with.

This situation could have been avoided if Bob had taken out income protection insurance. The payments replace 75% of Bob’s normal income, while he is unable to work. Bob’s family show could go on.

And if he had also taken critical illness cover, he would have been entitled to a lump sum tax-free payment on diagnosis of his heart attack, which he could have used for any purpose he liked. Pay off the mortgage and other debts, fund medical treatment overseas, take an extended holiday, enable part time employment when he’s back on his feet.

3. Margaret dies or becomes disabled. Since Bob has always been the main breadwinner, he hasn’t given a thought to insuring Margaret’s life. But now the reality really hits. If he has to employ people to undertake all the roles and tasks Margaret formerly took on, 24 hours a day, 7 days a week, he could be facing a staff bill of $70,000 a year or more. Where is that amount of money going to come from?


Let’s face it, it simply wouldn’t be right to deprive your family of a reasonable lifestyle, and your kids the chance for a good education and brighter employment prospects, when there is an affordable way to ensure both in the event of death or disablement.

So how much insurance do you need?

Rice Walker Actuaries calculate you should aim to have insurance cover to the value of 10 times your earnings when your children are young. So if you’re earning $50,000 a year, the recommended sum insured would be $500,000.

While that might sound like more money than the average family would need, here are some sobering thoughts that really put it into perspective.

6 in 10 Australians with dependent children don’t have enough life insurance cover to look after their families for more than 1 year if they were to die. And 4,400 Australians with dependent children die every year. Even more people suffer an accident or disability and are unable to earn their income for an extended period.

Think of all your other living expenses aside from the costs associated with the kids – mortgage payments or rent, utilities, car or other transport expenses, food and clothing. And you wouldn’t want to deprive them of little luxuries like holidays, birthday presents or outings. When you add these all up the sum insured no longer looks like a windfall.

Don’t forget the non-income earning spouse. If your family had to employ someone to take over unpaid family care and housework duties, even at a nominal $20 an hour for a 7 day week, you could expect to have to pay $70,000 a year. Multiply that by the number of years your children will need such care and you quickly come to realise how important it is to have the right type and right level of cover for both parents.

The really good news is that these days insurance does not have to cost an arm and a leg. Plus, policies are more flexible than in the past and can be put together to suit your family’s specific situation. You may already have some level of cover as part of your superannuation entitlements. As the advertising says, you can provide a level of peace of mind for the price of a few cups of coffee a week.

Protecting the assets you have worked hard to build is a fundamental cornerstone of good financial planning.

Big Sky Financial Solutions advisers can do a comprehensive review of your insurance needs. This service is also available over the phone. Call us now and ensure that you and your family are adequately protected.