4 key elements of a personalised risk management strategy

Managing risk is an important part of running a business, but many people often forget to plan for unforeseen circumstances in their personal life. Accidents, illnesses or bereavements can strike at any time, which could have an impact on your financial security if the household’s main income earner has to take a considerable amount of time away from work.

In worst-case scenarios, the death of a loved one could create significant money troubles for those affected in addition to the emotional strain. While you may be quick to insure your car, house and other big-ticket items and possessions, you may neglect a personalised risk management plan for yourself and other family members.

Underinsurance in Australia

Figures from Rice Warner showed the average amount of insurance required to cover a middle-income Australian family is $680,000, yet the median level of life insurance is just $258,000 – a gap of $422,000. According to Rice Warner estimates, the total underinsurance gap for the main life insurances was $1,811 billion in 2014.

So what risk management options are available? And how can you build a comprehensive strategy to ensure your family are effectively provided for in the event that your main source of income comes under threat?

Here are three types of risk management solution that can give you a higher level of financial support.

  1. Life insurance

Australia’s life insurance market is worth $61 billion in revenues, according to figures from IBISWorld. Rice Warner believes underinsurance for life insurance costs the country’s federal government approximately $57 million, and the firm claimed typical superannuation funds don’t meet the needs of many families.

Calculating what life insurance coverage you and your family require can be a complex task that takes into account many factors, such as your age, health, family size and earning potential. You should therefore discuss your needs with an experienced financial adviser who can find the right policy that’s tailored to your specific circumstances.

  1. Total permanent disability cover

If you suffer an injury or illness that stops you from ever returning to the workplace you may be classified as having a total and permanent disability (TPD). Your disability may prevent you from doing any work at all or specifically a job that you previously had the training, experience or skills to perform.

Statistics from the Australian Network on Disability show that approximately one-in-five people in the country have some form of disability. However, as the name suggests, TPDs are usually defined as disabilities that stay with someone for a lifetime and have a considerable impact on their standard of living.

  1. Income protection

Effective financial planning should cover both short- and long-term needs. This means having a retirement strategy, as well as a safety net for the immediate future if you encounter money difficulties.

Income protection is a type of cover that provides you with financial security if you can’t work due to temporary injuries or sicknesses. Unlike TPD insurance, which is often a one-off lump sum payment, income protection is usually paid on a monthly basis and most policies have claim restrictions. For example, you may receive 75 per cent of your regular salary over a specified time period, such as five years.

  1. Trauma Insurance

If you become ill, Trauma insurance can pay you a lump sum to free you from financial worry so you can focus solely on getting better. The types of illnesses that can be covered are:

  • Cancers,
  • Heart disease,
  • Strokes,
  • Multiple sclerosis,
  • Alzheimer’s,
  • Motor neurone disease, and many more.

Trauma cover will pay a lump sum benefit to help you stay on top of debts, pay for medical bills and generally help you maintain a reasonable standard of living while you’re recovering.

Finding the right risk management strategy

It’s impossible to predict the future, but that doesn’t mean you should take your health and the health of your family for granted. This means you should seek advice on a personalised risk management strategy in addition to any retirement planning or wealth management needs you have.

To discuss your circumstances in more detail, please contact us today on (03) 9349 3499 or admin@adwealth.com.au.

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Tony Dimitriadis