Life happens! Some things can be planned for whilst others take you by surprise. The surprise  can be good, or can it be awful and expensive. So having a ‘back-up plan’ can alleviate the  financial pressure that a ‘bad’ surprise can bring. 

Life insurance is something that no one wants to pay for and often we convince ourselves that  we don’t need it because it won’t happen to us. Or having a discussion about life insurance  means we have to contemplate our own mortality which is uncomfortable for some (similar to  why a lot of clients don’t have a Will in place – but that is a topic for another time!) 

There are some insurances like house & contents, car, travel and health insurance that most  people have as it is almost mandatory.  

  • If you have a mortgage your lender will want to see your current building insurance policy.
  • If you are single and earn over $90k (or a family with income over $180k) and don’t have  private health insurance then you will be charged the Medicare levy surcharge 
  • Travel insurance is not mandatory, but most travel agents would strongly recommend you  have it, particularly when travelling overseas 
  • Car insurance, whilst also not mandatory, is something the majority of people who own a car  have even if it is just third party. 


But as financial advisers we often experience pushback from clients when we start talking about  life insurance, particularly when we are talking to people in their 30s and 40s. Our Aussie attitude  is ‘it won’t happen to me’ but sadly we have many stories where it does in fact happen to people  this age. 

Just to clarify that when I say life insurance, I am using that term to cover a whole range of  personal risk insurance: 

  • Life insurance – pays a lump sum to your beneficiaries when you die. 
  • Total & permanent disability (TPD) insurance – pays a lump sum to you when you are deemed  to be totally & permanently disabled and will never work again. 
  • Income Protection insurance – pays a monthly benefit to replace your income when you are  temporarily disabled and not able to work, or can only work part time due to illness or injury. 
  • Trauma insurance – pays a lump sum on diagnosis of a serious, specified, illness. 


Below is a case study of a real-life story which demonstrates the power of insurance, and how an  experienced financial adviser can help you alleviate financial stress associated with serious illness and death of a loved one.

A Case Study

Natalie and Clive first became clients of mine back in 2013. At that stage they were both in their  mid-30s. They had a primary home with a mortgage and an investment property with a loan and  both worked full time. They had no children.  

Based on their financial situation I recommended they take out Life insurance, TPD insurance and  Income Protection insurance.  

The type of insurance that you can obtain through a licensed financial adviser is called retail  insurance and it is fully underwritten. Being underwritten means that the insurance company  asks a lot of questions about your health and lifestyle and sometimes needs to do blood tests or  get reports from your doctor. This process can sound very intrusive, but the benefit is that you  know that you will be paid a benefit when you need to make a claim (unless of course you have  omitted information or lied on the application).  

Natalie and Clive went through this process with the end result being that the insurance company  accepted their applications at standard rates. This means that there were no loadings on the  premium and there were no medical conditions excluded. 

Over the years the sums insured for the policies increased, as did the premiums, but Clive and  Natalie were well aware of this as each year we had a meeting to discuss their financial situation,  including their insurances. We did make some recommendations to reduce their level of cover a  few years ago when they came into some money, but the reduction in premium was not  significant so they chose to retain the higher sum insured. 

Sadly, about 18 months ago Clive was diagnosed with Motor Neurone Disease.  

The first thing we did was organise the claim documents for his Income Protection policy. His  policy had a built-in crisis benefit payment which meant they received 6 months of his income  protection benefit without having to serve the waiting period. Clive and Natalie had to arrange  for his Specialist to complete a medical form and provide test and scan results, but we took it  from there and liaised with the insurance company on their behalf.  

Should Clive still not be able to work after the initial 6 months, the insurance company would  then begin making monthly payments until he either turned 65, returned to work or passed away.  

As Clive’s condition deteriorated we needed to consider if we would claim under the Total &  Permanent Disability policy or the Terminal Illness definition of his Life insurance policy. Both  benefits would pay them a lump sum of around $1,100,000 but one would be taxed and one  would be tax-free.  

The Terminal Illness definition would get the benefit tax-free so we decided to go down that  track. This involved getting two doctors to confirm that Clive’s Life Expectancy was less than 12  months which was heartbreaking for all involved.

The alternative would be to claim on his Total & Permanent Disability policy. This would need  him to get two doctors to confirm that Clive would never work again. However, because this  policy was paid from super the proceeds would have been taxed at up to 22% when it was  received.  

The terminal illness claim was paid out in full and they used some of this to pay off their home  loan and other debts. Being debt fee with money in the bank allowed Natalie to remain at home  with Clive and not have to worry about going to work to pay the bills. At bit later on, when Clive  needed to use a wheelchair, Natalie had the funds available to purchase a special van that would  accommodate Clive’s wheelchair. Clive also travelled interstate to his home state to spend a  couple of months with his family and close friends whilst he was still able to.  

Less than a year after his diagnosis Clive passed away. Natalie, as his binding death benefit  beneficiary, was able to withdraw a lump sum tax-free from his superannuation account to repay  the remainder of the investment property debt. With the balance she was able to start a pension  which was tax-effective and would also allow her to access lump sums should she need to do so  in the future. 

Natalie is slowly rebuilding her life without Clive, but is very grateful that the insurance that we  recommended 10 years ago was available during this awful time. It meant that both Natalie and  Clive could focus on what was important without the stress of having to pay a mortgage and bills,  and it meant they could afford whatever medical treatment Clive needed to make him more  comfortable. 

And interestingly Natalie has retained her own insurances even though she is in a good financial  position, because as she said ‘you never know what is around the corner’.


I think Natalie summed up beautifully the reason we recommend insurance to clients – you never  know what is around the corner. 10 years ago when I first met Natalie and Clive we never  contemplated that we would be doing a Terminal Illness claim for Clive at the age of 44. But we  recommended insurance because they had debt and earned an income. So if one of them did  become seriously ill or injured, we didn’t want them to have to stress about money but be free  to concentrate on caring for the person who is injured or ill.  

If you don’t have insurance, but do have debt and/or dependents, then what is your back-up plan  if you become ill or injured and can’t work, or pass away? 

If after reading this you think you need to work out what your back-up plan is, then I need to let  you know that working out how much insurance you need, what type of insurances and how to  pay for it are part of a bigger picture that involves reviewing your superannuation, your other  assets, your cash flow, expenses and your age (just to name a few). 

It is a central part of a comprehensive review of your financial situation, not something we do in  isolation. We look at where you are now and consider where you want to be and formulate a  plan to get you there.  

So if this is something that you are interested in then please get in touch and make an  appointment for an initial discussion. This conversation comes with no cost and no obligation so  really what have you got to lose. 

Any advice in this document is general advice only and does not take into account the objectives,  financial situation or needs of any particular person. It does not represent legal, tax, or personal  advice and should not be relied on as such. You should obtain financial advice relevant to your  circumstances before making investment decisions. Michelle Robertsis a registered tax (financial)  adviser and any reference to tax advice contained in this document is incidental to the general  financial advice it may contain. You should seek specialist advice from a tax professional to  confirm the impact of this advice on your overall tax position. Nothing in this document represents  an offer or solicitation in relation to insurance in any jurisdiction. Whilst every care has been taken  in the preparation of this information, it may not remain current after the date of publication and  AUPFS and its related bodies make no representation as to its accuracy or completeness.

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