professional wealth management advisers

Friday, November 25, 2011

Personal Risk Management – are you adequately insured?

[This is the first of a series of Blob posts about personal risk insurance – commonly referred to as Life Insurance (although it actually covers off a number of risks potentially experienced throughout our lifetime). The series will be posted over consecutive weeks: this is post 1 of 6 items.]

What is personal risk management?

We’ll try a reality scenario as a starter:

It is 6:00 am. You hear your spouse stir from the bed and, in the usual routine, changes into some exercise gear and quietly heads out the door. In this case it is the main family income earner who has gone out. At age 49, this morning exercise routine was regular and helped keep fit for the rigours of the day’s activity at a professional office.

It is now 7:00 am and you notice that your spouse hasn’t returned. When the phone rings at 7:30 am to advise you that your spouse has been taken by Ambulance to Hospital and is being admitted to Intensive Care after suffering a major stroke, your mind clouds and you look quite concerned as you try to understand what you have just heard, process it – and then relate it to your two children (who you had been preparing to get away to school for the day).

After the concern for the well-being of your spouse has settled, early thoughts are going to be about your financial position;

  • The children have a few years of school left to pay for;
  • The house has a mortgage – mainly because of investments made;
  • Your spouse is the primary income earner;
  • Will modifications be required at home (for any continuing disability); and
  • How will the ongoing household – and perhaps additional medical - costs be funded?
You have been working to a strategic financial plan and have accumulated reasonable assets, but they are still subject to borrowings – and the success of the plan requires ongoing servicing of the debt as well as further contributions.
The good news is that your financial planner has implemented his recommendation and you have all of the relevant insurances in place – and for the appropriate amount of cover.

Wealth management is a critical requirement for those of us who seek financial independence in preparation for eventual retirement. Financial planning is all about wealth management and protection – and the peace of mind that goes with those outcomes. There are a number of phases in the wealth management process – taking stock of what financial resources are available; evaluating the cashflow surplus that can contribute to further accumulation; investing wisely according to our timeframe, goals and investor risk aversion profile – and having a back-up position for the possibility that any or all of this ‘could go wrong’.

A well-constructed financial plan comprises two critical elements – wealth creation and wealth preservation (wealth protection). Wealth creation is the accumulation of financial assets (wealth) and is premised on a range of assumptions and factors: including that you will have continued good health (ability to continue to earn and generate the surplus cashflow for investment) and anticipate living to a ‘projected’ age (giving you the investment timeframe to manage).

Wealth preservation is an important strategy for those who have financial dependants – whether family or business partners – who will find the challenges of adverse circumstances emotionally challenging, without having to deal with extreme financial difficulties. It is the process of shoring up the accumulating wealth so as to not expose your ‘nest egg’ to unpredictable, untimely, insurable circumstances.

Personal risk management is transferring the risk that your health may not prevail (and/ or that you may meet an untimely demise) to another party – an insurer.  Appropriate risk insurance policies will facilitate you meeting your long-term financial and lifestyle objectives in spite of such events.

Why have personal risk insurance?
Personal risk insurance is important to relieve you and your family of the financial burdens associated with the loss of income if an event occurs such as death or permanent/temporary disablement. It provides peace of mind that you and your family are financially secure by providing an ongoing income source, debt repayment, a replacement housekeeper/nanny while your children are young, and possible funds to meet your children's future education needs.

Why should a professional assess my risk insurance needs?
Given the complex nature of risk management, professional assistance should be enlisted to ensure that the correct type and amount of insurance is established. The type and amount of risk insurance will depend upon your personal financial circumstances and objectives, lifestyle needs, number of dependants, your age and other factors particular to your own situation.

What types of insurance are available?
The types of insurance policies available include:

[Refer to our website for a description as to what each of the various types of insurance policy is meant to cover; and how each of them is useful in protecting your planning. They are linked for your convenience.]

Why participate in ongoing reviews?
As your wealth grows as a result of the implementation of your financial plan and your personal circumstances change, your need for insurance cover may decline or increase over time. Therefore, it is beneficial to periodically review your insurance cover.

Contact Us
Experienced advisers at Continuum Financial Planners can assist you determine your needs for personal risk insurance protection: please contact us for prompt attention to arranging a meeting to consider your particular situation – use the above link, or call our office on 073421 3456.

The information contained in this article is general in nature and does not take into account personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek the appropriate financial advice and read the relevant Product Disclosure Statement or other offer document prior to acquiring any financial product.

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