Life Insurance - how much is enough?

As the Senior Financial Adviser at Solace Wealth Management, a large part of my role is helping my clients build wealth. An equally important part of this involves putting a plan in place to prepare for the worse case scenario, I call this you ‘Plan B’. It's often a difficult conversation to have - it can be a little bit uncomfortable to discuss with your family and it's something that many families just don't want to talk about. But the conversation shouldn't be avoided as it really is about establishing a strategy that protects your assets and your family should a tragedy occur.

Everyone's Plan B is different and really needs to be tailored to individual circumstances. To help guide people through that initially uncomfortable discussion, I have put together some tips for you to consider.

Debt

This one might sound simple, have enough cover to repay debt. In some circumstances having enough insurance cover to repay all debts can be unaffordable. When the goal is to try and reduce debt as quickly as possible, using cashflow to pay for insurance premiums seems counterproductive.

Some of the issues that I need to address are:

- Is it personal debt or investment (tax deductible) debt?

- Are the debts secured against an asset?

- What is the loan amount in relation to the value of the asset it is secured against?

- Can the surviving spouse afford the loan repayments or will they be forced to sell an asset to repay debt?

- If an asset needs to be sold, what is the impact of a untimely drop in market value?

These are important questions to ask, and you may not have all the answers immediately, but at least starting the conversation helps to start the process.

Expenses

After a family member passes away, the surviving spouse and family will continue to incur their usual living expenses. Life insurance does not provide an ongoing income, it is a single lump sum payment. Therefore, we need to calculate as accurately as possible what lump sum will be required initially to enable the surviving spouse and family to continue to meet their expenses without forcing them to alter their standard of living.

Some of the issues that I need to address are:

- Will the surviving spouse continue to work, or be comfortable commencing work, in the event of their spouses death?

- What is an appropriate period of time to take off work to grieve, and for their family to adjust? This can vary greatly between individuals.

- How any children are there, what are their ages, and will their expenses increase or decrease into the future?

- How close is the surviving spouse to retirement?

- What other assets are there to help meet the cost of living?

In many cases Life Insurance can be funded from superannuation, however it is important to understand the implications of doing so and the impact this may have on your superannuation balance at retirement. Your strategy in managing your ‘Plan B’ should include having the appropriate conversations with your family members and discussing these issues with an experienced Financial Adviser. It’s about understanding the implications of your options and ensuring that you are comfortable with your ‘Plan B’.

To discuss your ‘Plan B’, contact Kate Trost at Solace Wealth Management on 0423 313 486.