Separating or getting divorced? Make sure your finances and insurances are in order.
No one likes to believe that their marriage will fail. But the stark reality is that in Australia, ‘happily ever after’ is no longer a given. More than 40% of marriages end in divorce.
And, during the separation process, most financial discussions between former partners tend to focus on dividing cash and assets. However, managing insurance is equally important.
Why is insurance so important after divorce?
Having adequate insurance is a safeguard against unexpected situations. Of course, when you’re in a thriving relationship insurance is important, but if you suddenly find yourself as the primary caregiver and financial provider of young children, it is even more so.
Because, when you’re in that particular moment, dealing with a scary, life-changing crisis, then you just want to be sure that everything else in your life – your mortgage payments, your rent, your medical bills, your car finance, the electricity bill, the groceries, the school fees – can still be paid … And to a large extent, life can carry on.
There are four types of insurance that you should consider if you’ve had a marriage or relationship breakdown.
1. Trauma Cover
Trauma insurance can provide a lump sum payment if you suffer from a specified medical event. It can assist with a range of expenses including medical care, income stream (if you need to stop working), ongoing costs of recovery, and even debt repayments.
2. Income protection
While there’s a component of income protection insurance in many super funds, it’s usually only generic cover and won’t necessarily be adequate. Income protection insurance will help you provide financial stability if you are no longer able to work.
3. Life insurance
Life insurance pays a lump sum benefit if you pass away or are diagnosed with a terminal illness. If you pass away, the insurance is paid to your nominated beneficiaries.
4. Total and Permanent Disability (TPD)
Like its name suggests, this insurance will cover you if you can no longer work, manage a household, or care for yourself and your children.
Generic versus tailored insurance
The type of ‘generic’ cover that might already be a component of your super or your mortgage is a type of ‘one-size-fits all’ insurance. It isn’t always something that you can rely on for your particular individual circumstances. Tailored insurance, on the other hand, is specifically designed to cover your personal needs. While tailored insurance does cost more, in the long run, the extra you pay in premiums gives you peace of mind that you know exactly what you’re covered for, and how much your payout will be.
Get professional advice
A financial planner can help you determine exactly how much cover you need. And a planner can also help you detail instructions for your will, particularly in the case of life insurance, if you’re leaving it with the intention that any benefit will provide for your dependents. What’s more, a planner can liaise with your insurance company for you if you need to make a claim – one less thing to worry about at a time of stress.
If you would like to know more about policies that may be suitable for you and your family, please contact me. It’s good to conduct a ‘check up’ on your policies from time to time to make sure they’re in keeping with your needs.
This is general advice and should not be treated as personal advice. Tyron Mitchell is an authorised representative of MoneyLink Financial Planning Pty Ltd ASFL No: 247360.
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