Life Insurance - Do I Need More?

• 

  benwaffle on 27/10/2019 - 10:13

  Death is pretty clear cut definition-wise so having it within super is OK. You need enough to clear all your debts and provide for your kids until they turn 18/21 (presuming once you die your partner will have to be a full time parent and unable to work).
  TPD can be tricky within super because different funds have different definitions of what constitutes disability. It also can depend on your occupation and some jobs will benefit from an 'own-occupation' rather than an 'any-occupation' cover.
  Usually best to speak to a insurance specialist to see if your TPD cover is suitable

  • 

    Deridas on 29/10/2019 - 01:45

    My understanding is that since several years ago you can no longer take out "own occupation" TPD within super. So if you're a narrow specialist in a certain field, you may want to consider "own occupation" TPD outside super.

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  87percent on 27/10/2019 - 10:47

  My Financial Advisor said if you have kids, your insurance should be over $1m

  • 

    mskeggs on 27/10/2019 - 11:12

    -1

    Why stop there? Your financial adviser likely got a commission on that policy, so why not make it $5million so they can get a new boat?

    • 

      whooah1979 on 27/10/2019 - 11:23

      Op have a household income of $90k. Would an insurer allow op to take out a policy that is way outside of op’s earning capacity?

      • 

        mskeggs on 27/10/2019 - 11:31

        I think it is hard to get income protection in excess of 80% or salary, but lump sum death isn't a problem, as I understand it.

    • 

      Seraphin7 on 27/10/2019 - 12:19

      Please. Depending upon how you look at this problem, your death benefit should equal the present value of your remaining working life earnings. Obviously this can be hard to project, but to look at our OP, he's 30 years old on $75k/year. Even on a very simplified set of assumptions, another 30 years of work at $75k a year adds up to $2.25m. Discount this at 3% (broad inflation number) and you're within shouting distance of $1m.

      • 

        mskeggs on 27/10/2019 - 13:06

        your death benefit should equal the present value of your remaining working life earnings.

        Why? The main person deprived of my future earnings is me, but I don’t need to be compensated because I am no longer around. The portion of my earnings that will benefit others is a subset, and this thinking assumes they won’t find suitable substitutes for that portion.

        By paying the policy premium on millions of insurance you are forcing your dependents to do without that money now, for an unlikely possible future benefit.

        • 

          Seraphin7 on 27/10/2019 - 13:12

          +1

          @mskeggs:

          The main person deprived of my future earnings is me

          Well, that probably is the primary difference. In my family, others are the primary beneficiaries of my earnings. If you spend most of your earnings on yourself, then obviously that income does not need to be replaced.

        • 

          Deridas on 29/10/2019 - 01:22

          @mskeggs: If the life policy is obtained via super, then the money spent on the policy isn't money coming out of everyday expenses for your dependents anyway, just less money for when you retire, which with some luck your dependents should no longer be "dependents" anyway.

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  inventel on 27/10/2019 - 10:48

  +1

  For life insurance, if I were in that situation, I'd want the payout figure to be able to pay off any debts I have (primarily a mortgage, which you don't have) and create an income stream with the leftover for my family (such that my partner wouldn't need to work).

  For example, let's say I didn't have any debts nor any other savings, and for the sake of example assume a return of 4%pa. That would return $18,000 a year my family with a $450k payout. Is that enough to live off? For me, the answer would be a very clear no. I would definitely be aiming for around $50,000pa as a minimum, which means I'd be leaning towards somewhere around $1.25m. That would change a bit depending on if my family owned a house outright.

  Standard disclaimer: just my own thoughts on what I'd do in that situation, not personal advice ;)

  • 

    mskeggs on 27/10/2019 - 11:21

    Why would you expect your partner to never work if they were a single parent?

    • 

      inventel on 27/10/2019 - 11:25

      I didn't say I didn't expect single parents to never work. However, if I were choosing a life insurance policy, I'd personally want to choose an amount such that my partner wouldn't need to work (and I'd want to set up the inverse for me).

      • 

        mskeggs on 27/10/2019 - 11:25

        -1

        Why?

        • 

          inventel on 27/10/2019 - 11:35

          @mskeggs: Assuming there's no deaths in the family, I want to aim for FIRE (financial independence). I think that would be difficult to do on a single income with the costs of looking after children. As such I'd want to have it that policies were in place so that I or my partner could still achieve that if one of us were to die. I'd obviously much prefer the non-death related option ;)

          Once again, this is just how I would set it up personally. You're more than welcome to disagree; a range of opinions and options for OP is good, where he can evaluate different approaches.

          • 

            Deridas on 29/10/2019 - 01:20

            @inventel: I like your setup. Mines similar.

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  mskeggs on 27/10/2019 - 11:20

  +1

  Financial advisers and other insurance sales people want you to think of life insurance like winning the lottery for your beneficiaries.

  A death should be an unfortunate event, but it should not set your family back too far.
  But it also shouldn't be a ticket to easy street.
  I think of it from the bottom up. If I was out of the picture for other reasons (e.g. divorce) I would want my kids not to be paupers, but I wouldn't be expecting my ex to never work or my kids to get free houses. Similarly, I don't expect if I die for my kids to be better off than if I lived.
  And I expect my spouse would have to work and pay bills, just like if I was alive.
  Consider also, that there are many single parents who are managing fine with no big lump sum from an ex-partner, so it isn't like if you had no insurance it would be the streets.

  In my scenario, the above boils down to paying off the mortgage and a bit extra so my family would have time to reorganise themselves to the new reality. That happens to be the amount that is the default in my super insurance.

  • 

    mskeggs on 27/10/2019 - 11:24

    +1

    Or to put it another way, 5 years after I am dead, my spouse's new partner would surely be please I left paid off houses and some extra, but they would be ecstatic if I also left paid off houses and income streams.

    • 

      wordplay on 27/10/2019 - 12:01

      can't you just write into your will that your spouse is not to get a new partner?

      • 

        [Deactivated] on 29/10/2019 - 07:21

        +1

        Lol!

    • 

      Rilo 117 on 27/10/2019 - 12:03

      Thanks, this hit a cord with me, we live in rural Victoria and for $200-250k you can buy a moderately nice brick home, with the remaining amount i calculated that outside of any additional income (super, centrelink, selling my car or part time work), it'd be enough money to live comfortable for 6-8 years, my kids would be in primary/high school by then allowing my partner to find extra work if needed. We have a big family to could assist too if she needed extra work.

      I think with where we're at in life, its acceptable, once we buy a house this might change but I think with the above points and reading all the other comments I think this is enough.

  • 

    SlavOz on 27/10/2019 - 11:59

    Not everyone has a partner who is able to work full time. In some cultures it is tabboo for women to work all day while their kids are raising themselves. And I don't think anyone has ever seen life insurance as setting their family up for a life of boats and cash. Most policies max out at $2 million. For an average couple in their 30s with children, that's pretty much just enough to live comfortably as you would if both partners were working. Not really much there for free houses etc. By the time your kids turn 18 or 21 they'll still need to go out and work for themselves. The remaining partner will need whatever money is left (if anything) for themselves since they probably don't have much Super and never got much of a chance to relax since the death of their spouse.

    Also, nothing wrong with setting up your kids for a better life than you had. That's basically what every parent wants to do.

  • 

    Seraphin7 on 27/10/2019 - 12:32

    Two words … testamentary trust.

    • 

      mskeggs on 27/10/2019 - 13:12

      Wouldn’t you wish you spouse and children happiness after you die? Why limit their access to money via rules in a trust when you aren’t around anymore.
      And even so, assuming the trust does eventually pay out to your dependants, the joy of some future spouse is undiminished because they gain the benefit of a well provided for new spouse with fewer obligations to their new step children.

      This is why I don’t think death benefits should be like lotto wins. They should take the financial sting out of the loss, but not make it a win.

      • 

        Seraphin7 on 27/10/2019 - 13:16

        +1

        The trust is not there to limit their access to money. It's to limit others' access.

        Or to put it another way, 5 years after I am dead, my spouse's new partner

        Such as unscrupulous new partners that couldn't give two sh!ts about your kids and who just use whatever provision you've made for your kids as their own personal jollies fund.

• 

  SlavOz on 27/10/2019 - 12:05

  $450k for death might be a bit low. On top of funeral and legal costs after you die, your family needs enough to keep living ad they currently are. Ideally you don't want them to sacrifice their standard of living. Work out your annual cost of living and then ask yourself how many years is 450k going to cover…for some families that's just enough for about 4-5 years of basic living expenses. What happens after that? If you trust your partner will be able to hold a full time, decent paying job while caring the kids as a single parent, then no problem. They should be able to adjust after 4 years of your death. But there might be other special needs that stops her from working full time. Talk to a professional advisor about this.

  • 

    mskeggs on 27/10/2019 - 13:00

    I think the muddled thinking in a lot of these replies saying a large death benefit is necessary is this initial presumption: “Your family needs to keep living as they currently are.”
    This is not possible, for a start, one parent is missing.
    Each remaining family member will make different choices because of that.
    For example, a widowed spouse may remarry or choose to study or upgrade skills, choices that aren’t available or priorities when a partner was alive..
    Expenses like new car leases or overseas holidays that can be justified as a lifestyle choice with two adults working, look extravagant to a single parent, even one who has a large bank balance because of an insurance payout. Costs of supporting the missing adult are no longer needed in the budget.
    And remember, even a paid off house with not a cent more, would put the remaining people in a high wealth bracket for that age group. A paid off house for almost every family in Australia before late middle age is the definition of good financial security.

    If my family chose to sit around for years and years locked in the past, living off a depleting lump sum if I died, I would be very disappointed. Except I wouldn’t, because I would be dead.

    Insurance is very costly for a product you hope to never gain a benefit from. Your family is very likely to gain a much bigger benefit from paying that extra money into the mortgage or super now, than frittering it away on insurance that will probably never pay out.

    • 

      SlavOz on 27/10/2019 - 15:43

      You're still missing the point. A lump sum payout means a single parent can buy a car or go on holidays (as they would with 2 parents working full time) without it being extravagant. They could also afford to take a few years off work and study as you say, either for career progression or personal gain, without worrying about finances if they needed to. Yes priorities change after a partner dies, the point of life insurance is to make sure those priorities can be financially accommodated.

      If your life insurance costs $400 a month, you would pay $216,000 in premiums after 40 years. Most life insurance policies are worth a lot more than $216k, and can kick in a lot sooner than 40 years.

      And when it comes to life insurance, it will always pay out. Most policies have lifetime cover that never expires.

      • 

        lgacb08 on 27/10/2019 - 16:34

        +1

        No, life insurance within super generally decrease as you get older and will almost pay you nothing after you reach retirement age

        • 

          SlavOz on 27/10/2019 - 20:29

          @lgacb08: Sorry I was referring to private life insurance through a seperate insurer - apparently some people combine a private policy with their super life insurance to increase cover.

          • 

            Deridas on 29/10/2019 - 01:32

            @SlavOz: Regarding lifetime cover that never expires, they're technically called "life assurance", and they're really a savings plan rather than insurance. My understanding is that it's not popular in Australia, but more so in other parts of the world.

            I think life assurance is a bad idea as your not actually getting "insurance", but rather investing in a product with a long maturity. I reckon such investment products are high risk as the company can go bankrupt prior to you dying and you'll lose all your premiums/savings, and quite often if your do the maths + account for inflation you might be better off investing in the sharemarket with likely higher returns over the same period of time, and sharemarket investments can be pulled out at call, whilst the life assurance premiums/savings are "locked in".

            The insurance most value for money (and to actually protect your family) is the life insurance that is the cheapest under 35 and incrementally/exponentially increases in premiums until 60 or 70, and premiums depend on your occupation, a health check, and blood tests, therefore your premiums roughly correspond with the risk of you dying in that very year, which is the point of "insurance". The theory is that by the age when your premiums rise significantly you will have saved some sort of nest egg so you can reduce the amount on the life insured, therefore reducing the exponentially increasing premiums.

            Pay it through your super and the premiums won't come out of your everyday expenses.

            DYOR

        • 

          mrtin on 12/11/2019 - 22:58

          @lgacb08: Not all

• 

  Seraphin7 on 27/10/2019 - 12:24

  I reckon you're a bit light on.

  Without getting into the discussion of whether your insurance should be inside or outside super (that's a lengthy discussion itself), I'd encourage you to consider death and TPD cover somewhere around the $1m mark (see my comments above in the thread).

  For income protection, you're basically going to be limited to 75% of income (some insurers I've heard will do 80%) so you could only get a few more hundred a month cover anyway.

  You may also wish to consider trauma cover. This is only available outside of super. But, again, there's a whole other discussion there.

• 

  [Deactivated] on 27/10/2019 - 15:10

  What if something were to happen to your SO? How would you manage with 2 little kids? Will you be able to stay home and take care of them?

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  Cheap Steve on 27/10/2019 - 20:07

  For my death & TPD I have an underwritten retail policy for $1m + with a level premium which is deducted annually from my super fund.

  My approach to minimising insurance premiums over a lifetime was to take out cover when I was young and healthy (and cheap to insure) on a level premium and a "life events" option which let me increase the sum insured as I got married and had kids.

  I have $1m + because my wife and kids live a charmed life now and if I pass early then I want it to stay that way. The premiums are being paid out of super so not affecting my day to day cash flow (just my future retirement savings but I'm comfortable with that).

• 

  HeWhoKnows on 28/10/2019 - 07:41

  You can buy as little or as much life insurance as you like.

  Remember to add all your unencumbered assets into the mix n the plus side including superannuation.

  Just be sure to cover all your encumberances and funeral costs as a minimum.

  No need to go overboard unless you are planning to die soon

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  OzHunterNSW on 28/10/2019 - 09:35

  You are viewing insurance from the perspective of you at fault and leaving a legacy conducive to a lifestyle you possibly don't even have now. One of the cars would not be needed and sold off. Without you, food and utility bills will be reduced. What are you insuring for? You have no house to loose. Immediately your partner has access to your super. You only need to insure in the event of loss of income, which covers super contributions. If for what ever reason the "fault" lies in actions of another, it is their insurer that pays you.

  • 

    kiitos on 25/11/2019 - 12:59

    What sort of passout would the at fault party's insurer pay? I assume you're taking about things like CTP or workers comp or public liability?

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  brad1-8tsi on 28/10/2019 - 13:05

  The amount of death cover depends on whether you expect your missus to get on with life or stay dressed in her widow's weeds mourning your death.

  Any death cover I ever had was enough to cremate me, cover debt and 12 months pay. I considered that enough for my wife to get herself organised with childcare, suitable housing, selling off all my crap, a new bloke to sponge off, etc.

  It's good to try and plan for the future but in your position I'd worry about paying off debt, your career progression, your wife's career progression, budgeting to improve savings, etc. $20k in the hole on the CC scares the poop out of me. How?

  • 

    Rilo 117 on 28/10/2019 - 14:18

    $20k wasn't in CC debt, just detailed it was prior debt we paid off, which was a Car loan, when we had our first born we fall into the trap of "needing" a Family size SUV to get around in :(

    • 

      brad1-8tsi on 28/10/2019 - 14:24

      OIC

      I can only suggest that, when possible, you spend your money on family experiences rather than "things". My kids still talk about our experiences (holidays mainly) as a family but not that much about when we had the Holden Calais with the video screens (they rarely worked so maybe that was the issue). Keep the family size SUV for 10+ years and it's probably cheap motoring.

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  aussiepuck on 28/10/2019 - 19:31

  Mate i work in the industry so know this very very well.
  How much is this bothering you? The reason i ask is that if its bothering you - my advice is go and get advice! The responses here are just peoples opinions/personal situation etc. Any independant financial adviser will be able to suitably assist with this. It wont be cheap but you'll get proper customised advice, a retail insurance policy (please dont get me started on super vs retail its like comparing a set of golf clubs from the 70s to brand new ones today (yeah they both hit the ball but they aint even close in quality) and you'll get someone who actually has the skills, qualifications and tools to do the job properly. You wouldnt do your own electrical wiring but you'll do your own insurance calcs and stick inside super cover?

  • 

    kiitos on 25/11/2019 - 13:06

    I wouldn't mind you getting started on the diff between in Super and retail, I presume you're saying retail is much better than in Super?

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  clover on 28/10/2019 - 19:57

  Agree with the comment above. Talk to a financial adviser. Also, one thing to check is if your TPD cover is TPD assist. Sunsuper is the only one in the market where they offer such TPD benefits to members. TPD assist means you won't be paid the full sum insured at once but in 6 instalments. If you don't like that, talk to Sunsuper and switch to Tailor cover.

  • 

    mrtin on 12/11/2019 - 23:01

    If you are totally disabled why would you want tpd paid over 6 months as opposed to one lump sum?