When things are going well, it’s hard to imagine your life changing drastically. But all too often, families are left stranded when the breadwinner is unable to continue working. With the start of a new year, it’s a good time to take a closer look at your insurance cover. Would your family manage financially if you were unable to continue working? How would you pay your mortgage or rent? And how much insurance cover do actually you need?
A good starting point is to determine how likely you are to make an insurance claim. It’s not uncommon for people to go through a period of gradually worsening health. This “disablement process” could take several years or it could take a relatively short period of time in the case of a debilitating illness. No matter how long it takes, it will impact on your ability to meet your financial obligations. Having access to extra funds during this time to help pay your bills, mortgage or day to day expenses means avoiding having to face a serious financial challenge.
Types of cover
From health cover and life insurance, trauma or total disablement, to income and mortgage protection; let’s take a look at the different types of cover, benefits and risks you could be faced with for each of these.
A major health problem could put your life on hold. Health insurance covers hospital treatments and major diagnostic tests, letting you get quality advice and treatment as soon as you need it, rather than having to wait until it’s available. If your budget doesn’t stretch to full cover, consider taking out a “major medical” health insurance policy and paying your GP and Dentist visits out of your own savings.
Aside from the obvious emotional stress, your death or diagnosis with a terminal illness has disastrous implications for those you leave behind. Would your family cope with living costs or repaying debts if you were no longer contributing towards their income? Life cover provides a lump sum payment in the event of death or a terminal diagnosis. Your family can use the lump sum to repay any debt, an income-generating investment, pay for your children’s education, or pay off your mortgage.
If you’re the main earner in your family, income protection should be a critical component of your risk plan. If a serious illness or accident stopped you from working for several months or even longer, could your family survive financially? Income protection provides you with a percentage of your income each month to cover your day to day expenses, while a mortgage repayment policy covers your ongoing mortgage repayments, giving you peace of mind to recover without having to worry about the bills.
Trauma cover protects you in the event of major illness like cancer, heart disease or stroke. Any one of these illnesses can impact on your lifestyle, your ability to earn, and could mean you need special equipment or changes to your home. If you suffer a condition covered by your policy, trauma cover pays out a lump sum which you can use to pay off your mortgage, make alterations to your home, or pay for expensive treatments not covered. Deciding on the level of cover you’ll need means determining what you would use the lump sum for should you need it.
Total or permanent disablement cover provides for you and your family if you’re unable to work ever again. Aside from your living costs and mortgage payments, the added cost of your care can have a considerable financial implication. This type of cover pays a lump sum that you can use to get debt-free by paying off your mortgage or to provide an ongoing income for your family.
A game plan
According to a recent report by the Financial Services Council, New Zealanders have the third lowest rate of insurance out of 31 developed countries. Adopting a “she’ll be right” attitude can leave you open to risk, that’s why it’s important you have a game plan.
Preparing for any eventuality means ensuring your insurance cover meets the needs of your family and your financial obligations. These can change over time, so it’s a good idea to regularly assess your insurance needs to ensure you’re not over or under insured. Your mortgage and insurance adviser can help you determine whether or not you have the right level of cover to meet your current needs. For free, unbiased advice, talk to our mortgage and insurance advisers about the level and type of insurance cover you need.