AFRM SERIES: Do I need risk insurance? Part One

Posted by Bethany Shaw on 28 January 2016

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This year we are introducing a new series called ‘Do I need risk insurance?’ It will focus on what insurance different people may need at different stages of their life. Each month we will look at a particular demographic and discuss why insurance may be useful for them. We hope this helps you understand what insurance could be relevant for you. 


Young business man cropped

Who am I?

My name is Ben and I am a 30 year old male with no children and no partner. I enjoy my inner-city lifestyle.

What is my financial situation?

I earn $120,000 per annum working for a major bank. I have just bought an inner-city apartment for $500,000 with mortgage repayments of $2,200 per month.

Why would I need risk insurance?

While there is no need for death cover for Ben as he has no dependents, his biggest asset right now is his future earning capacity. If he was suddenly unable to work due to an illness or disability he could potentially lose his entire future earnings. The ability to generate an income is the biggest asset he owns. Why wouldn’t he want to insure that?

Ben should look at the following:

  • Income Protection – if Ben was suddenly unable to work, this insurance would provide a replacement income stream so he could continue to pay his mortgage and have enough for living costs. He could also ensure he has enough money to provide for his future goals and retirement.
  • Total & Permanent Disability Insurance (TPD) –  TPD insurance can give you a tax-free lump sum if you are permanently unable to work due to accident or illness. You can choose to use this money as you wish. You can pay off debts and/or invest it to generate regular income. Should Ben suffer an event, there is the potential for significant unforeseen costs such as medical expenses and rehabilitation costs. His superannuation contributions would cease, which will affect the lump sum accruing for later in life.
  • Trauma cover - this pays you an agreed amount if you are diagnosed with a specified critical illness, such as cancer or heart disease. It’s designed so that you can stop work and concentrate on getting better. You can use this money to pay down debt and cover living expenses, along with your medical costs and any modifications needed to your home (such as rails or wheelchair access).

What should my financial adviser ask me?

  • If an accident or illness prevented you from earning an income for more than a few months, could you continue to pay your bills and afford the lifestyle you currently enjoy? What if it was a couple of years?
  • If you were unable to work, how would you plan on paying your mortgage repayments? Would you prefer not to have to ask your parents for help or would you need to sell your apartment?
  • If you were to suffer from a long-term disability or illness what financial impact would this have? How would you fund your treatment and ongoing living costs? Would your family be able to support you indefinitely?

But wouldn’t I be covered under Workers Compensation?

Workers Compensation is limited. It only applies if you are injured during working hours or for illness directly resulting from your employment. It doesn’t cover sickness at all (unless its work related). If you’re self- employed, you may not even have this cover.

Isn’t it too expensive for me?

Income Protection premiums are tax deductible and can cost less than $12 per week

I’m young. It wouldn’t happen to me though….

We like to think that ‘it will never happen to us’, though many of us will be significantly impacted by a disability, major health scare or the premature death of a family member.

More than 60% of Australians will be disabled for more than one month during their working life and over 15% will be off work for greater than three months.*

*Australian Disability Table IAD89-93 Class 2.

Real AFRM Claim example

“Andy” is a 31 year old self-employed gardener and landscaper. Andy had an accident while working and shattered his kneecap. This required surgery to repair and a further arthroscope several months later. Andy was unable to work at all for over six months and was then restricted to light duties for another six months. He received payments from his Income Protection policy of over $30,700 during this time, helping to pay the rent and living expenses for his girlfriend and himself.

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.
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