What will happen to you or your family if you're no longer around, or can't work?

Can you replace your lost earnings?Will the mortgage be paid? It's not a pleasant thought that your family would have to sell their home if they couldn't make ends meet.

Unfortunately, while most of us will happily insure our car and home, we seem less than happy to insure that very valuable asset, ourselves. Just 55% of Australians have life insurance and 31% have income protection insurance.(2) Even if you do have insurance, you may well be underinsured. Average group life cover falls about $165,000 short of the amount of the average new mortgage.(3) It's probably no surprise then, that studies(4) have found that 60% of Australian families with dependent children will not be able to support the family on their insurance payout for more than one year.

Can I arrange my insurance through my super?

If you've got some cover through your employer super fund, you're off to a great start. This can be a cost-effective way to arrange your insurance. This cover is often a fixed amount, so you'll need to check how much you've got and whether you can increase it. You should also check what happens when you leave your employer, as you may lose your cover.

You can also take out your own cover,through a policy in your personal super fund. This is a good option if you're self employed, can't increase your cover in your employer's fund, or need more flexibility.You can take this cover with you from job to job.

Some other advantages of taking out insurance in your personal super fund include:

• you can pay for the premiums out of your super benefits rather than from your after tax income, and
• your personal deductible contributions or salary sacrifice contributions can be a tax-effective way of affording insurance premiums.

How can I change my cover?

By discussing your insurance needs with your financial planner, you may need to increase your cover or apply for a new policy by completing an insurance application form and questionnaire from a current Product Disclosure Statement. Once you have completed this information, you will be contacted if further medical evidence is required to complete your insurance application.

Speak to your financial planner or risk insurance specialist for more information.

Footnotes:

1 Present value of $50,000 annual income from age 35 to 65, at a discount rate of 3% p.a.

2 TNS/IFSA, Investigating Income Protection Insurance in Australia (July 2006)

3 IFSA Life Insurance Headland Statement (July 2007)

4 Underinsurance Key Facts, IFSA (August 2005)

Source: Colonial First State