(03) 9020 2905Pretend this is “The Price is Right” and I’m Ian Turpie. I need a quick answer. Ready?
Which of these two groups is more valuable? Group A: Your car, your home contents and your house. Group B: Your life, your arms/legs and your ability to work for the next 20-30 years?
Time’s up. Anyone who answered “Group A” can stop reading now. Move onto the next story, or go to work. Sorry, I don’t have enough time to help you today.
If you don’t understand that being alive, being able to walk and earning $60,000 (or whatever) a year for the next 30 years is more valuable than a $30,000 car, $50,000 of home contents and some bricks and mortar, then nothing I write today will help you.
I’ve only got time to save those who understand, like Ferris Bueller, that it’s too late to fix a problem after the 1961 Ferrari has flown out the back window of the garage.
If you answered “Group B”, there’s hope.
Somewhere between 75 per cent and 90 per cent of Australians insure their car, their contents and their homes. (How are there 10 per cent who don’t insure their homes? It’s either stupidity, selfishness or arrogance. “If I get hit by a bushfire, the government or a bushfire appeal with pay for a new one.”)
But when it comes to insuring what’s most valuable to us, Group B, the uptake is the reverse. Less than 15 per cent have proper coverage.
According to an interesting new survey, Australians at most risk sort of “get” that they need life insurance to protect their lives and their families … but not really.
Life insurer TAL’s Australian Financial Protection Index says that nationally we scored 24.2 out of 100 when it comes to properly protecting ourselves and our families against financial Armageddon. That is, dying, not being able to work or having a major health injury or accident.
“Hey, what’s news about an insurer telling us we don’t have enough insurance?” I hear you ask.
Fair question. But TAL’s figures are very interesting. Essentially it’s a snapshot of where we rate ourselves.
What it showed was that those of us carrying above average risk do actually hold more insurance than those carrying lower risk. (Though total cover for both groups is abominable.)
What’s “above average” risk? Having children to raise, a spouse at home, a large mortgage, taking big investment risks, or having a larger income, for example.
Thirty per cent of Australians scored 0. That is, they have no insurance to protect themselves or their families.
At the other end, just 8 per cent scored 70 or more. About one quarter scored between 30 and 70 – still largely a fail – and the remainder, about 37 per cent, scored between 0 and 30.
Wow. We’ll pay $1000 to insure a $30,000 car that will be worth $15,000 in two years’ time.
But if we die, we’re happy for our partner and kids to become financially destitute for the sake of $1000 a year. First, dad dies. Then, because Dad’s income isn’t
around anymore, mum and the kids lose the house and get pulled out of their nice school. Then mum has to go back to work to even pay the rent.
If you got sick and couldn’t work for a year, could you still pay your mortgage? What if you could work for two years? The fact is that the vast majority of us couldn’t hold on to the mortgage.
Those at greater risk at least have slightly better cover.
“Higher risk” households scored 35, while lower risk households scored 27. Those who eschewed risk, scored just 20.
Higher income earners also got it … a little bit. Households earning more than $90,000 a year scored 32, while the lowest earning households (less than $40,000 household income) scored just 16.
Those with mortgages scored 32, while renters scored 14.1. Those married scored 28 (maybe the same ones bought Valentines Day cards last week), while singles scored just 18.
It’s not hard. There’s good research available on the internet. If you don’t trust yourself to do that properly, speak to a knowledgeable financial adviser.
Or are you happy to see your partner and kids suffer emotionally and financially, if something happens to you? Sorry, but it’s that simple and emotional.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au), a licensed financial adviser and mortgage broker. bruce@debtman.com.au.