AFRM SERIES: Do I need risk insurance? Part Two

Posted by Bethany Shaw on 30 March 2016

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iStock 000017522573 MediumThis month in our 'Do I need risk insurance?' series we meet the Chens. 

Who are we?

We are Monica (35) and Adrian Chen (37). We have two children Lily and Michael who are 4 and 2.  

What is my financial situation?

Monica works in HR earning $90,000 pro rata, 4 days per week. Adrian works in IT for a major courier company earning $130,000. They own a small house on Sydney’s North Shore, which they bought five years ago for $895,000. They have mortgage repayments of $3,600 per month.  

Why would they need risk insurance?

With two small children, a large mortgage and a dependency on two incomes, the Chen’s should have insurance to provide them with financial protection. If one of them died or was unable to work they would not be able to afford their mortgage payments. They would need to sell their house and possibly rent in a cheaper suburb or move in with Monica’s parents. Is this the outcome they would want for the family that are already dealing with a death, disability, or severe illness?

The Chen’s should look at the following:

  • Life insurance – if either parent tragically passed away 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 whilst maintaining their standard of living.
  • Income Protection  for both Adrian and Monica - this would provide a replacement income stream if either one of them could not work. They would be able to continue to pay their mortgage and other living expenses.
  • Total & Permanent Disability Insurance (TPD) –  if either parent 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 Adrian or Monica were diagnosed with a serious illness such as cancer, this money would mean they could choose to stop work and concentrate on recovering from the illness.

What should my financial adviser ask me?

  • What outcomes would you want for your family in the event of your death?
  • Do you want your children to attend a private school?
  • Do you have family and friends you could rely on or would you prefer to be able to protect yourself financially?
  • How long could you survive financially if you were unable to work?
  • How much do you own and how much do you owe?
  • If you or your partner got really sick, what financial impact would this have? Would you want to be able to have time off to be with them?

This could be hard for us to afford…

While the monthly premiums may seem a lot for a young family, ask yourself this – would you prefer to live off 100% of your income now and have nothing if you couldn’t work or died, or could you try and live off a little less to ensure your family have financial protection in the future?

It wouldn’t happen to me though….

We like to think that ‘it will never happen to us’, but sadly 34 Australian families lose a working-age parent every day.

Source: Lifewise/NATSEM. (February 2010). The Lifewise/NATSEM underinsurance report: Understanding the social and economic cost of underinsurance.

Real AFRM Claim example

Female, aged 44, accountant

Diagnosed with muscular skeletal back pain

$650K TPD as well as $21K per month income protection

The TPD payment allowed the client to pay off all debt and provide capital for lifestyle changes and family security. The IP payments provide an income stream to help the family live comfortably.







If you would like to speak to one of our advisers please contact us. 

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.