What Personal Insurance I Have and Why: A Wealth Adviser’s Perspective
For the last 10 years I have focussed mainly on investment, and I’ve been fortunate enough to take advantage of lower prices through rising markets over this time (see Riding the Bull Market). I’ve assumed that the Accident Compensation Corporation (ACC) has me fully covered, that I could self-insure with investments, and that I would never be seriously ill or injured at age 28.
So, what if markets don't go up for the next 10 years, I continue to play rugby a lot longer than I probably should, and 'life' is
on the horizon: debt and dependents...
Income Protection cover
Like most my age, my ability to earn income is far and above my biggest asset right now. Working to pay my bills and then accumulating wealth is something I put plenty of time and energy into. For most, ACC covers our income up to a point if we get injured, but it doesn’t cover us for illness. Further, it insures us for “Any Occupation”, meaning if you have some capacity to work in any occupation (in even a limited capacity), your ACC cover stops. So, I have private Income Protection that covers me for injuries and illnesses that may keep me away from my “Own Occupation”.
I've also got Trauma Cover, which is inexpensive at a young age and with good health. This means if I have a critical illness (stroke, a bout with cancer etc.) I will receive a decent lump sum of cash to do whatever I want with. I can use my pay-out to get care, recover, invest, and continue normally through the wealth accumulation phase of my life. What’s more, my cover would reinstate a year later, covering me again for all other conditions.
The last piece of cover I have is Medical Cover. I'm fortunate enough to have had this through my workplace, so like my ACC levies it disappears before my wages arrive to my bank account. It's also paid for the removal of my wisdom teeth, which would have significantly depleted the emergency fund had I not elected to have cover.
What might I need when I have a mortgage and kids?
Relieving your loved ones of the burden of your debts is something that I think everyone does or would care about. If you won't leave enough behind when you die, Life Insurance may be your first port of call - no one wants to leave their partner with kids on one income servicing an overwhelming mortgage. When you take on debt or have kids, you should also review the amount of Income, Trauma and Total and Permanent Disability Cover you have, as the need for this cover will likely increase with your expenses. Conversely, as you accumulate wealth, reduce your debt and your children leave home, you should be able to reduce your level of cover.
Get the right advice
Get an analysis done of all your means and needs and then decide on what cover in what proportion is most important to you. DECLARE YOUR PRE-EXISTING CONDITIONS and if you don't know, ask. You will kick yourself if you've spent money on cover that won’t pay out because you didn’t declare these conditions. Finally, review it at each new stage of your life, be it moving or buying a house, having kids or running a business.
For Business owners / the Self Employed: There are typically large savings you can make each year by dialling back your ACC levies. Those savings can then be used to purchase private cover – private cover meaning accident AND illness. This is an obvious option that most self-employed people are unaware of.
If you would like to look at your personal insurance or adjusting your ACC levies, then please get in touch with your Findex adviser and let them refer you to one of our Risk Insurance specialists.
The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex Advice Services NZ Limited.