Many people in their 20’s are ‘invincible’ and believe they do not have a need for life insurance. I believe that a majority of this belief comes from a misunderstanding of what life insurance actually is. There are 4 key categories of life insurance (Death, TPD, Income Protection & Trauma) however only one of them relates to you actually passing away. I agree that for many of you in your 20’s death cover may not be appropriate, however the remaining 3 covers are critical to ensuring you are able to continue to meet your needs if something were to happen to you.
Total & Permanent Disability cover provides you with a lump sum payment in the event that you are unable to work in your occupation ever again due to injury or illness. While we are young, we would likely use this more to cover against injury than illness. These events may not even be under your control, you could be involved in a very serious car accident at any point in time that may leave you quadriplegic. In calculating the level of cover you would need, it is safest to consider what you would need in a worse case scenario. As most people your age wouldn’t have given this much thought, here is a list of the key additional considerations that you may need to fund:
- Home modifications ($150,000)
- Full time carer costs ($52,000 p.a.)
- Ongoing medical costs ($10,400 p.a.)
- Where will you live?
- How will you fund your living costs?
Moving onto another key cover while we are young, Income Protection will provide you with a monthly benefit if you are unable to work due to injury or illness for the duration of the event or to the end of the benefit period. Having this cover in place will help you to meet your ongoing expenses by supplementing your income. You are able to have a maximum cover equivalent to 70% of your current salary. As the intention for this cover is to help in your return to work, you can also receive a partial benefit if you are still able to perform a portion of your work. Similarly to TPD, while we are young it would be more common to go on claim for some sort of accident; whether that is the above example of a car crash or even a sporting injury.
Of the 4 types of insurance cover, Trauma falls into a similar category of death cover. In that it may not be essential to someone in their 20’s. That is not to say that it shouldn’t be considered however. Trauma covers specific traumatic health events, the big 3 being cancer, heart attack and stroke, however there are many other illnesses it covers. Trauma will provide you with a lump sum payout in the event you are eligible to claim. This type of cover needs to be strongly considered primarily for the fact we live in Australia where 2 in 3 people will have some sort of skin cancer before age 70. Another consideration for Trauma cover is that it is the most expensive cover, however if you lock it in while you are young you can significantly benefit from lower premiums when you are older.
When looking at the suite of life insurance, there is a lot of misconception from the younger generation. Although some of these covers may not be important in your 20’s, arguably TPD and Income Protection are more important while you are young due to the financial impact of never being able to work again. There are many considerations that need to be made if you are thinking about life insurance, by talking to a financial adviser you will be able to discover what is appropriate for you.
A financial adviser can help you discover the level of insurance appropriate for each situation. This way, you can feel confident that your loved ones and future are protected and your goals are achievable. Contact your Altitude Adviser to set this in motion, sooner rather than later.
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