Part 5 - The Wrap Up
As a wrap-up to my personal insurance series, I thought I would share some examples from my experiences. Firstly, a scenario where personal insurances have supported someone and their family. Secondly, a great example of a situation where having inadequate insurance can impact your loved ones once you are no longer here to support.
A man, let's call him John, comes to me and wants to put in place his personal insurances. We determine the level of cover he requires to ensure that he is protected and that his family will be provided for if anything were to happen to him. He is happy with the recommendation and the cost, and we apply for the insurances.
A couple of years later, John is diagnosed with prostate cancer. He calls me and lets me know his diagnosis, and we submit a claim for him for his Trauma Insurance. At the same time, we also start the claims process for his income protection as the doctor has said it will be a minimal six-month recovery period in which he will not be able to work.
Three days later, his trauma insurance claim is paid, and he now has an additional $250k in his bank account. The pay out allows John to seek alternative medicines that his private health will not cover and at the same time gives his wife, let's call her Sharon, the ability to stop work and be there to support John through his treatment. After his waiting period, John then starts getting his income protection benefit every month, which covers all the expenses and can still take a couple of family holidays. They have two kids, by the way.
Five months later, I get a call from John to let me know that he has just gotten back from the doctors, and unfortunately, they did not catch the cancer in time, and now it has spread. The doctor has told John that it is unlikely that he will ever return to work. I let John know that because the doctor said he would never return to work, we will submit the Total and Permanent Disability claim. This enables John & Sharon to clear all of their debt, take a sizeable overseas holiday, and make the required home modifications and pay for the treatment.
After a year, I get the dreaded call from John. The doctor has said that the cancer has spread throughout his body, and he has been given six months to live. This is dreadful news and heartbreaking. I let John know that we can submit a claim for his life insurance as he has been given a terminal illness diagnosis. John is excited that they can now buy his son and daughter a home and ensure that all education costs for both of them are covered. They can now also take the around the world trip as a family that they had always discussed but have never had the money or time.
As you can see by the above example, with the proper structure, the different personal insurances do not work separately and can, in fact, all work together. I'm glad to say that John is still with us today enjoying his life, and the cancer has actually gone into remission.
A Husband and Wife, let's call them Adam & Tiffany, sort advice from another adviser as they have recently purchased two investment properties using debt and the equity they had built up in their own home. They want to put personal insurances in place to protect these new assets they had recently acquired.
However, when presented with that advisor's recommendations, Adam was not happy with the cost and wanted to reduce the level of cover in line with a price he was willing to pay rather than looking at their needs. At the client's direction, the advisor reduced the level of cover and continued with the insurance applications.
Two years later, the advisor's office gets a call from Tiffany. Unfortunately, that advisor is no longer here, so I take the call. Adam has suffered a significant heart attack at the breakfast table in front of her and her son. He had passed away at the early age of 42). She is lost and does not know what to do.
We submitted the claim for her, which will help pay off her mortgage. However, looking at the level of debt that needs to be serviced with the investment properties and the extra property expenses. She can no longer afford to have the two investment properties, so she looks to possibly sell one or both as she does not want to have to go to work to support the investment properties and would prefer to spend time with her boy during the grieving process.
This is where it all goes wrong for Tiffany. She engages a real estate agent to get a market appraisal to make an informed decision on which investment property she should sell first. The real estate agent comes back with the appraisal, and neither property is worth what she paid for it, and to top things off, they borrowed extra to cover the interest while the properties were being built. This means that if she sells either property, she would need to clear all her savings to clear the remaining debt.
Tiffany is now faced with returning to work no matter what just to cover the cost of the investment properties that, in her mind, are going backward. She is distraught and was expecting the insurance to pay off all the debt so that she didn't need to go back to work and could use the rental income to fund their living expenses.
As you can see from the above examples, insurance can play a significant role in protecting yourself and providing for your family if anything happened to you. I can understand that there was an issue with the insurances' cost in the second scenario, and they sacrificed the level of cover to meet a financial need. However, would you want your loved ones to be left in that scenario once you are gone?
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Terrell Hyman the Director and Principal Advisor at Trl Financial Solutions.