We were asked to answer this question by Advisor Ratings, specifically on if this person’s life insurance, put in place through their super fund, is right for them.
“I am 55 years old and have basic life insurance with my Superannuation. How do I know if this insurance will be enough for my Husband and 2 school-aged children if I were to pass away considering I am the sole breadwinner?” -Nicole
Great question Nicole and one you are wise asking as the sole bread winner. The answer lies first in determining the position that you would like to leave your husband and children in if you were to pass away.
For instance, would you want your husband to be debt free? Would you want to provide for an ongoing income stream to replace your income and if so, how much would your family need? Would you want to allow for specific lump sum expenses such as your children’s education or funeral costs?
When asking if your life insurance is right for you and your family, it is appropriate to think of life insurance as being something for the loved ones you leave behind and leaving them in a position where they can financially absorb the impact of losing you.
Calculating the amount of life cover that you need can be done by a Financial Advisor. A Financial Advisor will consider your need in context of your overall Financial Plan and this is therefore the most comprehensive approach to understanding your need, as a Financial Advisor will not only consider your income and assets as they exist today, but how they may change.
There are also calculators that can help too, such as this money smart life insurance calculator, provided by the government.
Once you have determined the right level of cover, you should be reviewing the market for a suitable cover. A good life insurance contract will cover you against the risk of death, regardless of the cause of death.
Next is to structure your life cover well, so it is paid from your ‘gross’ income instead of ‘net’, keeping the after-tax cost to a minimum. Broadly this means owning your policy in superannuation, as it is tax-deductible in super.
Importantly however this does not mean that you must own the policy where your super investments are IE: Like you do currently.
What this means is that you should be comparing the cost of the cover you already have through your super fund with the market, to determine if what you have offers the best value.
Financial advisors, like Yield Financial Planning Melbourne, pay for comparison software that allows us to quickly compare the market, to identify leading insurance policies that are cost-effective.
If you choose to get your Life insurance policy through a Financial Advisor, they will typically receive a commission from the insurer, that does not impact the premium you pay IE: the cost of the premium would be the same if you went directly to the insurer, making financial advice from a Financial Advisor about life insurance accessible.
I would recommend that you read this short Blog that reflects on a survey conducted by Ipsos, that was commissioned by ANZ, that outlines the practical impact that losing a parent has on their children.
Furthermore, take a look at this short Life Insurance Video to understand more about what Life insurance is and why it is important.