Protect Your Most Important Assets: Your Family
Your income is your most powerful financial asset. That’s why you should consider income protection to cover you if you can’t work for a while…
NOTE: While much of the information below is still relevant, there’s a more recent version of this post which you can find here.
“How dare you!”
An angry caller on my radio show was chewing me out for some bad advice I’d given to the previous caller – a housewife in her mid-fifties who didn’t know how much her husband earned, how much debt they were in, or how much money they had in savings.
So what was my ‘bad advice’?
Well, I suggested she sit down with her husband and have him paint their complete financial picture. I explained that it was important because (a) odds are she’ll outlive him, (b) marriage is a team effort, and (c) they’re both jointly and severally liable for their obligations.
Caller: “The only thing you’re liable to do is give that poor chap a heart attack! Who are you to be filling his wife’s head with those questions – you’re putting their marriage in danger!”
Barefoot: “Nope. That’s what the husband is doing by treating his wife like a monetary mushroom (kept in the dark and fed fertilizer). And if you’re sticking up for him, you’re no better than Fred Flintstone expecting Wilma to come running when he rings a bell.”
Man Up
Generally speaking, men and women are wired differently when it comes to money. Men are more prone to risk-taking, whereas women value security. So it may sound horribly old fashioned, but I believe it’s a bloke’s job to man up and provide that sense of security for his partner.
Don’t misunderstand me. I didn’t say he has to be the breadwinner (I’ve got as much respect as the next bloke for happy-handbag-holder Tim Mathieson).
That’s not the issue. The real danger this poor woman faces is the same as for 95 per cent of Aussie families: she would be financially stuffed if her partner didn’t make it home from work tonight.
This is an uncomfortable subject. That’s why it’s been on my ‘backburner’ of column ideas for at least 12 months. But over the past couple of weeks I’ve been studying crisis financial counseling – and one of the most shocking things I’ve learned is that widows aren’t always little old ladies with blue hair. They come in all shapes, sizes and ages.
So it’s time that I man up and give you a simple, step-by-step guide to protecting your most important assets.
Have the Chat
Grab a piece of paper and draw a line down the middle. On one side write down what you own, and on the other what you owe.
Together, discuss the following questions:
The Three Questions
Question 1
If one of you weren’t able to work for a couple of months, how would you continue to pay your debts and other living expenses?
Question 2
What would happen if one of you didn’t make it home from work tonight?
Question 3
How would you look after the kids?
Don’t bury your head in the sand. The bean counters tell us that, before you before you turn 65, there’s a one in three chance you’ll need to be off work for three months because of an illness or injury. And, tragically, every single day 18 Aussie families lose a parent, according to the Lifewise/NATSEM Underinsurance Report. That’s why you need insurance.
Make the Call
Now don’t mistake me for a sleazy insurance salesman, but there’s a simple (financial) solution to these tough questions, and I’m going to show you how you can pay for it without opening your wallet. And all with one telephone call.
I’m guessing you’ve already got your basic insurances covered. If you’ve got a house, you need home insurance. If you’ve got a car, you need car insurance. If you’re Jennifer Lopez, you need butt insurance. And if you’ve got a body, you need health insurance.
Now for the advanced level.
Your income is your most powerful financial asset. That’s why you can get income protection to cover you if you can’t work for a while (although it generally won’t cover you if you become unemployed – that’s what the dole’s for).
Next you should look at the aptly named total permanent disability (TPD) insurance. This will give you a lump sum payout to pay off the mortgage or hospital expenses if you incur a disability that prevents you from ever working again.
And finally you should look at life cover, which really should be called death cover, because you only get it if you croak (well, your family gets it actually – that’s the idea).
Now go back to your piece of paper. You generally need enough life cover to pay off all your debts, and provide another income at least until the kids are off your hands. That’s why both parents need to be adequately insured (rule of thumb: get coverage for 10 times your current annual salary), because the surviving partner will need to take time off work to raise the kids.
The good news is that in most cases you can buy these three insurance policies by making a simple phone call your superannuation provider. (On doing so you may find that you’re already covered for at least life cover and TPD, but in most cases not enough.)
The advantage of buying your insurance through your super fund is that you’re paying with pre-tax dollars, and your fund can get a better rate than you can. You may want to want to add a few extra shekels to your super to cover the extra insurance, but I reckon it’s worth it.
(Oh, and another trick to reducing your insurance costs is to have a strong savings strategy in place. That way you can increase your waiting period, e.g. 90 days rather than 30, for when you can claim, and this can significantly lower your premium.)
However — and this is important — you should always seek independent financial advice before acting, especially when it comes to insurance. This is one area where it’s worth paying for it to be done right.
It’ll never happen to me!
One of the most annoying things in my life is that I look no different to that strapping young lad who won the Bendigo Fun Run in 1992. I haven’t aged a day – well, in my eyes anyway.
My receding hairline and protruding potbelly would say otherwise. Fact is, we’re all getting older and the one thing that I will be honest about is the need to look after my most important assets.
Whether you’re Wilma, Fred, Barney or Betty, carving out an hour of your own time to do the same will show that you’re an emotionally intelligent person who’s willing to look after the ones you love.
Tread Your Own Path!
