Sunday 3 March 2024

Insurance cover

Moomin has been reflecting on his mortality and considering the need for some liquid cash to cover immediate financial needs 'if anything happens'. He has most of his financial assets invested productively, so not a huge amount sitting around in a cash 'emergency fund' or his mortgage offset account. So I suggested that is what life insurance (and possibly Trauma or Critical Illness, and/or Income Protection insurance is for).

Moomin posted that he has 180K death cover via his employer superannuation, so I decided to check what my current level of 'default' cover is (there is a set premium which provides 'units' of cover, that decrease in dollar terms as you get older). Currently my death cover is only $46,450 (with the $12.59 premium paid by my employer) and the TPD cover is for the same dollar amount, but the monthly premium paid by my employer is $29.88. Not a huge amount of cover, but enough to cover our basic household expenses for about one year.

I currently have 99 days of accumulated sick leave, 69 days of accumulated long service leave, and 143 days of unused annual leave) and I have some Income Protection Insurance via my Employer's superannuation fund (my employer subsidizers the admin fee and refunds the insurance premiums - currently $56.87 per month). The IP policy has a 90-day waiting period and two year benefit period - so it would currently provide income replacement to age 64.25 if I had a health crisis tomorrow. Between sick leave and LOI insurance my salary is pretty much guaranteed to continue to 'normal retirement age' in the event of 'critical illness' or total and permanent disability.

The unused annual and long service leave will get 'paid out' if I get retrenched or reach retirement, so I am happy to accumulate most of that leave (I usually only take a week off at Christmas time). As the pay out would be calculated using the current salary rate, the value is pretty much inflation adjusted. My NW estimate should probably include the current value of the unused vested leave - which is current worth about $88K.

Aside from life insurance, my super would get 'paid out' to my dependent beneficiary (DW) in the event of my death. Since DW and DS1 are the other trustees in our SMSF, getting my super paid out in the event of my death should be quite rapid -- they should just have to fill in a form and provide a copy of a death certificate to be able to sell off some of the SMSF investments and then transfer out cash from the SMSF bank account to DWs personal account (although for tax purposes DW might be better off getting a reversionary pension - I'll have to check into this when I turn 65 and move my SMSF account into pension phase. (ps. I'm not sure how DWs SMSF pension phase account is setup - whether or not there is a reversionary pension option).

Overall  feel my insurance cover is adequate, as in general I 'self insure' by having a reasonably high NW. Having several investments that can be sold and 'cashed out' within a few days also makes the need for insurance cover less important. The biggest financial inconvenience if I died unexpectedly would be that DW would have to sell off the investment rental apartment to clear the mortgage, or else use some of my superannuation death benefit to pay off the investment property mortgage. There won't be any urgency to make any decision, as there is enough money sitting in the offset account to cover about two years of mortgage payments. She might do that, move into the apartment and then sell our home and make a 'downsizer' contribution into her super? I won't be around to know or care, and she is quite capable of making her own financial decisions (even if they probably aren't the same as I would make).

ps. In terms of contemplating one's own mortality, it is probably more productive/useful to take action regarding diet and exercise than reviewing insurance coverage and how 'liquid' one's financial assets are ;) Insurance is just another 'risk mitigation' tool, and poor BMI and fitness is another 'risk' that should be addressed. Easier said than done though -- transferring money from one account to another is a lot quicker and easier than shifting 10kg of fat into lean mass!

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