Are you protecting your biggest financial asset?
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You are your own biggest asset and you're worth more than you think so you'd better make sure you've got yourself covered.
My friend Kate bought the car of her dreams last week, a BMW convertible. Less exciting for her was the cost of insuring such a beautiful car, an annual pain in the backside for the finances but a necessary one.
Kate's priorities are curious. She is a working mum with young children so I asked her, "Are you protecting your family in the same way you are protecting your car?"
Naturally, she defended her role as a mother and care giver, informing me she would do anything for her family.
Don't get me wrong, she has worked hard and deserves the car she's got. But I am constantly surprised by how many of us are willing to insure our material possessions in case of theft, damage and accidents, but not insure what matters the most to our families, us.
What would your family's lifestyle be like if the unthinkable were to happen and you were no longer able to work or take care of them? Would your family be forced to sell their home or would your children have to change schools?
According to the Lifewise/NATSEM Underinsurance Report in February 2010, one in five families will be impacted by the death of a parent. A typical family would lose at least half of their income should this happen.
Could your surviving family maintain their current lifestyle on 50% or less of the current household income? Not having access to a car or having your home burgled is one thing, but losing you could be catastrophic both emotionally and financially.
Insuring your life is not as daunting as it seems. According to the specialists, the general rule of thumb when deciding the level of cover needed is to multiply your annual pre-tax income by ten to thirteen. If you earn $50,000 it follows, apparently, that you should insure yourself for at least $500,000.
Even if you earn no income, the loss of you as a stay at home parent can have devastating financial impact to add to the grief and distress. The surviving parent is left with limited options; reduce the amount of time at work or employ outside help. It's estimated that losing a stay at home parent would require additional income over the principal wage of more than $75,000 annually to cover childcare or home help expenses.
Most superannuation accounts come with, or have the option, of taking out term life insurance and/or total and permanent disability insurance. If you're thinking of using this option, it's important to check your last superannuation statement or call your superannuation provider and check what cover you have or what cover they offer. If it's not enough, then get some advice on whether you should increase it. If your main work is home based, there's an option to seek out other reputable financial institutions that will cover stay at home parents.
It's important to put the cost of life or income insurance into perspective. The average cost of insuring a new $74,000 BMW 123d convertible like Kate's is around $1300. The annual premium cost for $500 000 of life cover for a stay at home forty year old non-smoking mum costs from $365.51.
Get some advice on your situation, enough said.
I don't manage money for anyone except my family, nor do I give financial advice, and my opinions are my own unless stated otherwise. My writing should not be construed as general or personal advice. You should consider obtaining independent advice before making any financial decisions.