AFRM SERIES: Do I need risk insurance? Part Five

Posted by Bethany Shaw on 19 July 2016

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Retired couple croppedThis month in our 'Do I need risk insurance?' series we meet a retired couple. 

Who are we?

We are Brian (72) and Susan McKennar (70), a retired couple with three children and seven grandchildren.  

What is our financial situation?

We own our home in the Sutherland Shire, Sydney which is worth $1.2 million. We are self-funded retirees with an allocated pension of $70,000 per year. We have a comfortable lifestyle with no debt.

Why would we need risk insurance?

To put it simply, we don’t! We are likely to be ineligible for trauma insurance, and if we did suffer a trauma we have enough money to use for our comfort during this time. The sad reality is that, at our age, a trauma occurring now means we are unlikely to live long enough to need all of our money.

However, a key risk to us that not many people consider, is the financial risk of something happening to one of our children and the impact that could have on our retirement. We know that if something happened to one of our children or grandchildren we would want them to be financially protected.

What should my financial adviser ask us?

If our children suffered a serious illness or accident and could not work for an extended period, how would they cope financially?

If one of our children was to die unexpectedly, who would take care of the debts or provide for their family?

If we had to help out financially, what would it mean for our own financial situation?

My financial adviser said we should consider the following:

Talking to our children to ensure they have adequate personal insurance protection.

We could even consider funding the policy premiums ourselves, to ensure our retirement savings are safe.

It wouldn’t happen to us though….

In Australia one in five parents will become too sick or injured to work, or will die before retirement age.*

Around 22,500 Australian grandparents are looking after their grandchildren+.

The typical Australian family will lose half of their income following a serious illness, injury or the loss of one parent due to under-insurance.*

Real AFRM example

We sadly had clients who effectively had their financial retirement plans destroyed after their adult daughter and her children moved in with them. Their daughter was unwell and couldn’t look after herself and the kids. The cost of essentially raising another family meant they ate through their retirement savings and were forced to go on a pension. The lifestyle that they planned for was completely compromised.

+ Source: Australian Bureau of Statistics 4102.0, Australian Social Trends, Family Functioning: Grandparents raising their grandchildren, (ABS, 2005)

*Source: RiceWarner - http://ricewarner.com/research/wealth-management/underinsurance-in-australia/

Please note, this information has been prepared by Australian Financial Risk Management Pty Ltd (AFRM) ABN 21 001 696 868. AFRM hold an Australian Financial Services License (AFSL) 237186. The information is for general purposes only and has been prepared without taking account of your objectives, financial situation or needs. AFRM recommends that you seek professional advice before acting on any information contained herein.
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