AFRM SERIES: Do I need risk insurance? Part Six

Posted by Bethany Shaw on 25 August 2016

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iStock 000009910842SmallThis month in our 'Do I need risk insurance?' series we meet a middle-income earning family living on a farm in rural NSW. 

Who are we?

Meet Fiona (38) and Grant Jackson (40) who live on a hobby farm near Dubbo, NSW. they have two children and another on the way. Fiona is a stay-at-home mum and home schools the kids. Grant is a self-employed engineer. 

What is our financial situation?

They have a mortgage of $175,000  on their property. Grant earns $120,000 per year and they have no other debts.  

Why would we need risk insurance?

The family is totally dependent on Grant’s income to fund their lifestyle, so they need to ensure they have financial protection in the event of his death or inability to work. If Fiona could not run the household or home school the children, then they should also have the right risk insurance.

What should my financial adviser ask us?

What outcomes would you want for your family should one of you die?

Where would you want your children to attend school if something happened to Fiona? Would you prefer to pay for a private tutor?

How long could you survive financially if Grant was unable to work?

If either of you got really sick, what financial impact would this have? Would Grant want to be able to have time off to be with Fiona, potentially in Sydney?

My financial adviser said we should consider the following:

Life insurance – if either parent died there would be enough money to pay off the mortgage and provide enough funds for the family to adjust to changes in the family unit.

Income Protection for Grant - this would provide a replacement income stream if Grant could not work. They would be able to continue to pay their mortgage and Fiona could continue to stay at home with the children rather than having to work.

Total & Permanent Disability Insurance (TPD) –  if Grant became permanently unable to work due to accident or illness, they could use this money to pay off debts or invest to generate an ongoing income.

Trauma cover – if Fiona or Grant were diagnosed with a serious illness, this money would mean they could choose to stop work and concentrate on recovering from the illness. It is also highly likely that treatment would not be available where they live so the family would need to relocate to Sydney for possible treatment.

It wouldn’t happen to us though….

3 in 4 Australians will be diagnosed with a serious illness during their working life

58 per cent of working Australians have less than three months of emergency savings

Real AFRM example

Our client was a 45 year old mother of five living in rural NSW and she home-schooled all her children. Her husband was self-employed in his own business. When she was diagnosed with leukaemia, she was airlifted to Newcastle, remaining there for treatment for the next eight months. She had to stay within 20 minutes of the treating hospital while having chemotherapy and her immune system was compromised.

The insurance allowed her husband to spend most of his time in Newcastle with her, rather than having to work to generate an income. It also enabled them to rent a three bedroom apartment to live in during their time in Newcastle, rather than having to stay in Leukaemia House with their children on rollaway beds in their room. 

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.