As you may know, in October 2017, I was diagnosed with a cancer in my left lung that lead to a claim on my 23 year old trauma policy.
As I was working my way through the claims process, I realised that, even though I had advised my clients on hundreds if not thousands of policies over the years, this was the first claim on any of them – my own!
When I received the payment for the claim settlement – and, please remember, this payment and what it will do for me and my family, is the real product I’ve been paying for all this time – I thought about how this policy had changed since I first applied for it 23 years ago, helping keep my family protected all that time, changing to meet our changing needs.
My story, and the story of my insurance portfolio, reflects what we do for our clients on an ongoing basis, so I thought I’d share it with you, to help you understand how insurance may help you and your family, how it can be changed to meet your changing needs.
I arrive in Australia in 1994 with my wife and our little girl, born 1991. I’d left my policies in place in South Africa so that if anything happened to me before I could replace them here in Australia, my small, young family would have something to fall back on.
One of the first things I did after I got a job with MLC was to apply for a life and trauma policy, on my life with my wife as the owner so that the benefit would bi-pass my estate and go straight to her. The sums assured for each benefit were $350,000 with annual indexation – enough to pay off the mortgage and a little bit more to provide for my wife and daughter. At that stage, I couldn’t afford much more as we had not been able to bring much money out of South Africa when we left. My argument for Trauma rather than Total and Permanent Disability (TPD) was that, even though more expensive, some claimable TPD events are also covered by Trauma insurance – but not the other way around. Also, I had some life and TPD in my super fund – not much, but some.
This MLC policy would have increased by inflation in October 1995 but by then, my wife was pregnant with our second child and my cash-flow was a bit better, so I increased the sums assured on both benefits to $450,000.
Soon after our daughter was born, we moved to Brisbane. My role was better paid, came with better benefits and the price we paid for our new house meant we had a smaller mortgage. Also, part of my package was more life and TPD insurance inside my new superannuation fund – $450,000 of each – with salary continuance. This meant that if I died, was disabled or suffered from a traumatic illness or injury, my family and I would be OK, financially, being able to live the life-style that my wife and I wanted.
The policies all increased: MLC with inflation each year while the policies inside super increased with my salary. When my son was born in late 1998, we didn’t feel we needed to increase the MLC policy.
In early 1999, I lost my job, so I went out on my own. Losing the job meant that I lost the cover inside my corporate super fund. Fortunately, I was still fit and healthy and able to get new insurance so applied for:
Income Protection (IP – with a 60 day wait as I had some savings/investments and had got ahead of my mortgage repayments), life ($595,000) and TPD ($280,000 – a lesser amount than life because of the IP but enough to settle the mortgage with some left over for renovations or adaptations to the car – whatever might be needed because of the disability) inside my new super fund.
All the benefits increased each year with inflation. Even though my debt was reducing, my expenses were increasing, so I took up all the increases. These levels of insurance with my growing investment portfolios and decreasing debt meant that my wife and children would be able to pay off that debt, continue in the private schools that they were going to and have the life-style that I wanted for them.
When, in 2008, we established our own self-managed superannuation fund, I transferred my life and TPD insurance to that fund – $600,000 life and $310,000 TPD. We were able to reduce the levels of cover somewhat as my eldest child was nearing the end of her schooling and my debt was covered by an off-set account.
In 2009, my eldest child finished school – another big expense gone!
In the meantime, the MLC policy had been escalating each year. By 2011, the sums assured had risen to $732,555 each and the monthly premium to $816.24. Looking at our needs, we decided to drop the life cover from this policy as we had enough cover in the super fund to which I was making extra salary sacrificed contributions that effectively gave me a tax deduction for the premium – not possible with the MLC policy. This saved about $110 a month in premium without considering the tax effect. I left the trauma cover in place.
A year later, on further review, we decided to reduce the Trauma cover to $600,000 but left the annual indexing in place. This, again, saved premium for cover that we didn’t need to meet our needs.
In 2013, my second daughter left school and my mortgage was down to below $10,000, so in 2014, I made two more changes to the portfolio – I pushed the waiting period on my IP policy out to 180 days and reduced the trauma sum assured to $250,000. By this stage I was over my superannuation release age, so if we needed extra income, I could use my super to generate it. Similarly, if I needed a lump sum, I could source it from this fund.
2016 meant no more school fees as my youngest child finished school, so reduced the sum assured on the life cover inside super – left the TPD in place as I had a very dodgy right hip that should be replaced – if not replaced, that TPD cover might be needed!
Earlier this year, I had my usual medical and as all the results came back fine (apart from the hip), I talked to my wife about reducing the trauma to $100,000 – we have no debt, our investments have done well, I can draw a lump sum or pension from my super.
She said a very emphatic “No! We’ll reduce it to $200,000 first then see how you are and take it from there next year or the year after.”
And that is what I’ve been paid – to help cover the costs of the treatments I’ve had and those that are yet to come, to be able to take my wife on a big holiday to help her get over the stress that my illness has caused her – she needs one and she deserves one.
Very often when asked by clients how much trauma cover they should have, I say “How long is a piece of elastic?” While we can make some educated calculations for our recommendations to you, as we really don’t know what illness or injury you are going to suffer, it is very difficult to know exactly how much cover you should have – do what I did 23 years ago: get as much as you can afford, even if it the premiums hurt a little – and keep it going, you never know when you are going to need it.