WE all know that accident or illness can strike suddenly, and without respect for age or assets.
This leads to the vexed topic of life insurance, a subject to which most of us have a rather illogical reaction. We don't want to know about it; we avoid it, and yet when tragedy strikes we almost always wish we had taken out more.
So who needs it, and how much is appropriate? The first question is simply answered by asking; "what would happen if the breadwinner died, or was unable to work due to a serious accident or illness?" Obviously if you are single and living at home, or you have relatively small debts and a partner with a good income, you probably have no need for life cover. But, if you have a large mortgage and dependants, you should be asking just how much is enough.
Think about a couple in their mid 30's, with children aged 14,10 and 8. He earns $65,000 a year, and she earns $10,000 from casual work. Their debts total $200,000.
If he was killed, or became totally and permanently disabled, the family would need at least $1,300,000. This comprises $200,000 to pay off their debts, $1,000,000 to give the family an income to replace what he used to earn, and $100,000 to establish a fund for the children's education.
What is the most tax effective way to take out life insurance? Through superannuation - if the premiums are paid using salary sacrifice they are effectively tax deductible and for most people the benefits on death are tax-free. Also, by taking out insurance through your superannuation fund you can enjoy cheaper premiums as the large superannuation fund managers buy insurance wholesale and pass the savings on. As always, seek expert advice.
Noel Whittaker is a co-founder of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is firstname.lastname@example.org
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