I had an interesting conversation last week with a business contact, who is also a client. It was around life insurance and the underlying reluctance to reduce his current insured sum. He said to me, “don’t people just always have their life insurance?” In short, the answer is, no, not always.
My response was driven by the common misconception that you should always have life insurance, but that's certainly not the case and why education around this is important. I’ve had this conversation many times before; so often people just let their insurance get higher and higher and are nervous about getting rid of it.
This highlights to me the underlying experience people generally have with insurance. Far too many clients that come to us are under the impression that the insurance will always remain, and all too often it is not reviewed over time. As a result, the sums insured increase and so too do the premiums. But in reality, when the time is right, you’ve got to let the insurance go!
This categorically demonstrates to me how we at Hewison differentiate ourselves from a lot within the insurance market. Our relationship with our clients is a true partnership – the client experience is one where we consistently work together for the client's best interest, always.
Its also a direct result of our independent fee for service business model – that’s right, fee for service insurance! Conflict free, unbiased advice. There is no incentive for us to let premiums get higher because that’s not what dictates how much we get paid.
Insurance is all about identifying what financial exposures exist and transferring that risk to a third party. As we work through different stages of life, these financial exposures are naturally going to change and it’s important to be proactive about it. They are likely to initially go up, but more often than not, your personal and financial circumstances would generally mean that as you get older, your reliance on an insurer should be getting less.
Let’s play out a typical scenario – we’re young, carefree with few financial responsibilities in life. Insurance needs are perhaps minimal, but then we take on a mortgage, insurance needs immediately go up to protect that obligation to the bank and our home. Marriage and kids often come into the fold – a family with debt and young children is perhaps when insurance needs are at their peak.
But what starts to happen next? Debt slowly gets paid down, the kids slowly (or quickly) grow up, your asset position is constantly improving, in particular the assets that have the ability to generate you income.
We use clear strategies that allow us to be proactive in this regard.
If we don’t think you need as much insurance anymore, or at all, we’ll tell you.
We hope you all get to a point in life where your personal insurance policies are cancelled without ever needing to claim on them. If you do need to claim on them, you can be sure that we’ve provided advice on the appropriate amount that you need, in any point in time. We are simply here, holding your hand, every step of the way.
If our strategy was to ensure that your surviving spouse was able to live off $100,000 per annum for the rest of their life, then a simple strategy (as an example) would be to target $2,000,000. Because we expect that whilst invested in a diversified portfolio, it should generate the 5% income required for that $100,000 per annum indefinitely.
If the client’s income-producing asset position has reached $1.5M and no debt exists, then why are they still holding life insurance for $1M? That goes beyond what is required, as you age more often than not your exposure is constantly reducing and inturn your reliance on the insurer is constantly reducing.
Be aware of what you and/or your family have achieved together. Once you hit that goal of $2M (using the above example), you don’t need to rely on an insurer anymore. You’ve worked hard to make sure that your objectives can be met independently of external support. There is no longer a need to spend money on policies which have become increasingly costly over time. Be confident in your underlying strategy and the legacy you have built to ensure that your beneficiaries will be fine.
Don’t just accept that life insurance premiums are something you’ll always be paying. Because working with us, we want to make sure that’s not the case. If you need to review your insurance position our Life & Risk Specialists are here to help, keep in touch HERE.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email firstname.lastname@example.org or visit www.hewison.com.au
Please note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.