According to several surveys, Australia has a serious underinsurance problem. Most Aussies don’t have enough insurance coverage to meet their needs or lifestyle, should they need to make a claim[i]. Whilst many have some kind of insurance in place, especially thanks to super, it’s not enough to meet their needs and the needs of their dependents if they can no longer bring home the bacon. The problem is worse for families with children. The average life insurance policy takes care of less than a third of what a young family would require to replace the income earned by a parent[ii].
When you’re young and single, it’s easy to not worry too much about what kind of insurance you have. After all, if you pass away, nobody’s depending on you; even if you have a partner, chances are they have the capacity to earn their own income. If you’re temporarily incapacitated and can’t work as a young single, it’s likely that your basic living expenses could be met by a combination of savings, government support, and automatic insurance included with super or other financial products. There’s even an emerging trend (though it’s not exactly to be recommended) of young people giving up health insurance in favour of saving up for their own medical expenses or taking out low/no interest payment plans for big things like orthodontics[iii]. But that all changes when you’ve got young children depending on you.
Starting a family
Trying for your first baby is an exciting time, but it can also be financially stressful; the expenses can pile up quickly. If you want to opt for private obstetrics and a private hospital suite birth, you’ll need to review your health insurance over a year before you start trying. That’s because most plans that include pregnancy and birth cover have at least a 12 month waiting period before you can make a claim.
You may also want to take a look at the level of life insurance and income protection you have. If something were to happen to either parent, the other parent may need to take time off work to care for the new baby, or may have to pay for childcare. The right insurance may help cover the loss of income, and could help ensure that the family doesn’t have to dip in to savings that were meant for baby’s future opportunities.
The cost of raising kids can actually increase as they hit school age, and then again when they become teenagers. This is largely because of costs like private school, hobbies/sport/activities, and toys/electronics. According to a report by the National Centre for Social and Economic Modelling, even an ‘Aussie battler’ family on a low income, sending their child to public schools, will spend over $22,000 per child on education and over $53,000 per child on recreation from birth to age 18. The average family spends over $44,000 on education and over $100,000 on recreational activities.
If you want your kids to be able to continue enjoying the health and development benefits of things like after school sport and arts classes, it’s a good idea to review your insurances at this stage. Life insurance and income protection are the obvious starters, but you may also want to think about the relationship between school zones and home insurance. For example, if you were thinking of enrolling your kids in a great local public school, and your home were damaged beyond liveability, would you be able to afford to replace it in the same (or better) school zone?
Families with older kids, still dependant
What happens when the kids are just about ready to leave the nest? Well, there are a few insurances that you may need to look at as your little ones become increasingly independent. For example, there’s car insurance. If you want to teach your kids to drive in your car, or lend them your car once they’ve got their license, you’ll need to make sure they’re covered as drivers. For dependant kids who live at home while they’re studying at uni, you may or may not be able to keep them included in your family health insurance plan.
If you’re becoming an empty-nester, now is as good a time as any to think about your personal insurances. Chances are that by this stage, you’ve worked hard to establish a comfortable lifestyle for yourself and your spouse. Having the right insurance now could help prevent you from having to dip in to your retirement savings should something unexpected happen.