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It is very easy to set up automatic payments for things like insurance and then forget about them. While regular payments are extremely convenient, it also pays to review them annually and make sure they still suit your needs.
The most worthwhile insurances to have are as follows:
- Income
- Home
- Life
- Business
- Contents
- Cars
- Medical
- Caravans, boats and planes
Your Income
If you average $75,000 p.a. for 40 years, the good health that allows you to work is worth some $3 million.
Yes that’s right – your good health that allows you to work is worth far more than all your other assets put together.
It should be insured with income replacement insurance, which can be complex. It is best to get specialist advice. There are ways to keep the cost of income protections insurance down – typically by taking a longer deferral period – commonly 90 days or even 180 days.
Remember ACC only pays 80% of your income if you have an accident, and that may not be much if you are self employed and declaring a low income – or nothing at all, if you are not working.
House
For most of us, our home is the biggest asset that we have purchased. It needs to be insured.
“Security is an illusion, but it is a pleasant one.” ― James Rozoff
His Life
Here is an easy way to calculate what you need:
Cash – cash needed to pay funeral and other bills.
Income – cash needed to replace two to five years of his lost income.
Mortgage – cash to repay the mortgage.
Education – cash to help finish children’s school or university courses.
Retirement – cash to replace the lost retirement savings/KiwiSaver from his income.
It is pretty easy to get well over $500,000 to $1 million.
Her Life
Cash – cash needed to pay funeral and other bills.
Income – cash needed to replace two to five years of her lost income, or childcare costs if she is an at-home mum.
Mortgage – cash to repay the mortgage.
Education – cash to help finish children school or university courses.
Retirement – cash to replace the lost retirement savings/KiwiSaver from her income.
It is pretty easy to get well over $500,000 to $1 million.
Partnership life insurance
If you are in a business partnership, it is a very good idea to insure your partner’s life and for your partner to insure your life.
In the event that one of you dies, the survivor uses the insurance money to buy out the deceased partner’s estate. Then the deceased partner’s family has money to carry on with, and survivor is not forced into business with the deceased partner’s family.
A simple written agreement should be made, and for the sum insured to be the agreed value of the business. In this way you can prevent valuations being required, valuers fees, lawyers fees, accountants fees, and claims and counterclaims.
Key man cover
Let’s say, you own and operate a small business and are doing quite well. However the business revolves around you and your skills. If you die, the business will probably be in serious financial trouble before very long.
In addition, if you are not there, the forced sale value of the business is probably very small.
A good reason to insure the key man or key woman.
Save and Win
Life insurance and medical insurance get more and more expensive as we get older, especially over age 55.
Another option to consider is to build up a savings pool to cover such risks and then reduce or drop the insurances off as they become too expensive and you could then choose to save what you were paying in premiums.
It would be even better if you have the savings in place, are not paying premiums, and don’t end up needing any medical care – you would win again.
Actually, I can’t think of any situation where savers don’t win.
Supplied by Alan Clarke, financial & retirement adviser, & author. He also writes regular articles for the media & on line – see www.acfs.co.nz
His second book is due out in May 2014 & is entitled “The Great NZ Work, Money & Retirement Puzzle”.
Alan is an independent authorised financial adviser (AFA) FSP26532 & his disclosure statement is available on request and free of charge.
Seek professional independent advice for your circumstances to get the insurance cover you need for the price you can afford.
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