Pre-exisitng conditions
Most people know that Life Cover pays out a lump sum in the event of your untimely, and unfortunate passing. But the numbers say that 50% of the time that lump sum is just not enough. Read on to find out if you have fallen into the Life Insurance trap.

Life Insurance Lump Sum

Most Life Insurance (or Life Cover) is set up so that the family left behind will be able to reduce debts like mortgages, pay for schooling or children or provide an inheritance. Life Cover payouts are also sometimes used to create an investment fund to generate ongoing income or enable business ownership to be restructured. How these funds are used are entirely at the discretion of the recipients.

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When it’s not enough

Consider you are diagnosed with a terminal illness and given 12 months to live. Most Life Insurance policies will pay out immediately on diagnosis of terminal illness. Suddenly that lump sum is now needed to pay for your care until your passing. Often your other half will want to stop working to be able to spend time with you and care for you. Maybe you have a bucket list of activities that you absolutely, and understandably, want to do before you go.  A family trip to Disneyland will put a huge dent in your payout. Once these are all done how much is left for your family?

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Don’t Panic!

Making sure you have enough cover is relatively simple and you might be surprised at how inexpensive it is. Working together we can look at your Life Cover and make sure the insurance is enough to pay for your care while terminal as well as those things that are important to you as a legacy such as inheritance and clearing debt. If you then have a sudden death the lump sum payout will be much larger than your original plan- which realistically is never going to be a bad thing.

 

Making the numbers work

Here’s the numbers an “average” family of 4 should consider for their lump sum calculations. This is based on 2 adults and a 10 and 12 year old child.

$400 000    Mortgage                          (effectively gifting the house to your spouse)
$  15 000     Funeral                            (no need to dip into the mortgage money)
$100 000     University                        ($50 000 per child)
$140 000     Child Support                   (let’s say $10 000 per child until the age of 18)
Total   $655 000                                  Not an unreasonable amount really

Then you need to factor in the costs associated with a terminal illness – 12 months of your spouse’s salary, your bucket list and home care. Let’s assume that your spouse is on $70 000, you want to spend $50 000 on your bucket list and home care might cost you $30 000. That’s an extra $150 000 that you need from your $655 000 insurance policy. Where does it come from? The fund for the kids to go to Universality? The mortgage repayment? That cover for while you are terminal is essentially stealing from your spouse or children.

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It won’t happen to you?

None of us like to believe that we will be the ones that something terrible will happen to. Unfortunately the numbers tell us otherwise. About 50% of all deaths are preceded with terminal illness and about 1/3 of all claims for one of the biggest life insurance companies is for Terminal Illness payouts.

The crazy thing is that increasing your Life Cover by an amount to cover terminal  illness could only cost you a coffee per week. In our example the increase is only a quarter more of the original life cover amount but it can make the world of difference in an already stressful time.

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Next steps?

This isn’t about up-selling – it is about making sure you have the cover you need. I have seen it so many times and it’s not pretty.  Crunch the numbers yourself and then think about what you would like to do.  There are even separate terminal cover policies which are cheaper than Life Cover alone.  Get in touch and we can talk through your options. Peace of mind for a cup of coffee.

Get in touch now to talk through your options by calling 0800 COVER YOURS or filling out the form below.  No obligation – just straightforward advice.

 

Also have a look at this earlier blog: Should Life Insurance Be Called Legacy Insurance?

A tip

Make sure your wishes are in your will. A colleague of mine was the policy owner for her mother’s life insurance, and when her mother passed away suddenly the lack of direction about the money caused a family rift. Had her mother specified in the will what she wished to happen with the Life Cover then the rift was far less likely to have occurred.

Marc Hamilton REGISTERED FINANCIAL ADVISER

Marc Hamilton
Principal Adviser/Director

REGISTERED FINANCIAL ADVISER

P: 0800 COVER YOURS (0800 268 379) M: 022 040 7117
www.coveryours.co.nz

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Pre-existing conditions - Accuro

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