The first ingredient of a realistic and achievable financial road map is to build a solid financial foundation.

Insurance, also called protection, is the one of the critical components to your financial foundation - after paying off expensive lifestyle debts and building a financial reserve to cover unexpected expenses.

Insurance is how you and your family survive one of life’s curve balls that are thrown at you.

But it’s a jungle out there with lots of misinformation and complicated terminology that seems designed to confuse people. It’s no wonder we’re an under-insured nation.

In fact, many Australians have less life insurance than the size of their mortgage over their family home. Only 1 in 3 of us have life cover and less than 22% of us have income protection cover. 

What to insure?

There are many insurance policies you can take out, with no hard and fast rules about which ones you need. It really depends on your situation and level of risk.

A good place to start is to prioritise your wellbeing above possessions, focusing on the main types of personal insurance available, and why you might need them. Let’s break them down:

Income protection. Your ability to earn an income is your most valuable asset. Someone earning a full-time average wage for 35 years could earn millions of dollars - it’s worth protecting this.

Also known as salary continuance, it provides an income of typically up to 75% of your earnings, in the event you’re unable to work due to illness or injury. It provides a level of comfort knowing that vital expenses are met while you recover.

Life insurance. A lump sum amount is generally paid when you die or in some cases, if you’re diagnosed with a terminal illness.

Cover can be taken inside or out of, super and can be used to eliminate debt, provide your loved ones with a mortgage-free home, create a replacement for the income needs of your family when you’re not around, or to supplement your other assets to meet your intended estate plans.

Total and permanent disability (TPD). Covers you for a disability that stops you from ever working again. A lump sum payment is generally provided when your doctors are able to state that in their opinion, you’ll never be able to work again.

With high levels of disability comes potentially significant expenses including medical care and necessary modifications to your home, loss of income from employment and potentially, the loss of income for a loved one who devotes time to caring for you. The insurance proceeds could also be used to reduce or eliminate debts, or to provide an income.

Trauma. If you’re left with an illness or injury that lasts for several years, this is where trauma insurance fills the gap. It generally pays a lump sum in the event you experience one of the traumas listed in the contract such as cancer, stroke or a heart attack.

Similar to TPD, the insurance proceeds could be used for several purposes including paying for medical and rehabilitation expenses, reducing financial pressure by reducing or eliminating debt, and as a top-up for lost income.

How much?

Which type you need, and how much of each, is something we can help you with at Otivo.

Our Insurance Optimiser can search for any insurance you might have in your super and what it’s costing you.

While you’re there, you can also add your health and general insurance details (like car and home insurance) so it’s all in one place. Linking your map my plan account to a financial institution enables our Expense Tracker to show you how your budget’s coping with the premium costs.

Once you’ve got that sorted, you’re in a great position to shop around for cover that suits your needs and budget. If your budget can’t cope with increased premium costs, check for cover in your super fund (premiums are deducted from your super balance not your wallet and reduces what’s saved for your retirement).

Regardless of what type of insurance you’re seeking, premiums can vary widely. It makes good sense to understand what’s available and at what price.

If in doubt, source it out by speaking with an insurance broker. Life is too important to miss.