A very common question I hear is; "Why should I have life insurance" and "When should I get life insurance"?

Similar themes on the same thing, relevance. Relevance to them and their situation. Alternatively, more the point they do not have enough knowledge about the subject to make a reasonable decision. 

I suggest a well-informed decision rather than a reasonable decision, but that is just me, the risk adverse risk guy.

I have talked elsewhere about the difference between life cover and life insurance; the former is about death and terminal illness and the later about a range of insurance products that insure people.

Fundamentally insurance is about transferring risk, in the form of money, directly or indirectly, to solve a problem the insured has.

The why in the questions above is about transferring risk, everyone has a risk, so the issue is not so much about the why.

It is more the when. Yes, you have all heard the saying get life insurance before you have medical conditions. Ideally, this is true at the same time it is not the reality. 

Many people delay acquiring life insurance for many reasons:

• Perceived lack of need, we all die eventually. 
• Fear of the cost, don't want to know in case their fear is realised
• More the point, don't understand the costs, both from now and from delaying this until later. The risk is the risk, later often results in more expensive due to medical conditions developing before getting cover.
• Mistrust and distrust, stories they have heard that are often not the full story or the full truth behind the trust issues.

I am going to park all of that and talk you through the when, as this is the one that tends to be the most challenging for everyone. 

When should you get life insurance?

When you have a risk, is the very short simple answer, but this hides the thought process and oversimplifies the real issue.

It is the identification of risk that people have the challenge with. There have been many books on the subject, and frankly, most people do not read them, or if they do, don't act on them.

People do not identify risk well. Their fundamental optimism blinds them to downside risk. So I am going to keep it simple.

In today's environment, the one risk that is universal to everyone, no matter what the age or stage, is medical treatment. 

You have no idea when you are going to need it, and when you do, it is often a surprise, and you want it dealt with straight away.

To this end, I am going to use medical treatment costs as the baseline example from here forward. 

For clarity medical treatment costs are:

• Private medical treatment, specialists, testing, surgery and private hospital stays. i.e. Not public hospital and emergency situations; and
• Unfunded medicines where the public funding does not extend to cover this. i.e. currently Ketruda and a variety of new cancer treatments.

When it comes down to it; access to medical treatment is a universal risk and need; the question is when do you need to insure for it?

When should you get life insurance? Now, yes, now. 

However, the delivery of Now can come in many different ways.

Huh? 

Yes, this is the head scratch part, when do you want your insurance to pay for it?

When it happens! 

Yes, that is the simple and obvious answer, but not always the right answer for you.

Huh? 

Yes, so have I got your attention?

Let's say you are diagnosed with cancer; you have to have surgery, you need some time off work, and you also need to pay for expensive medicines.

At this point, I would hope we have had a good conversation, and we have your cover in place because getting cover is going to be hard to impossible.

Let's talk about what's needed here. 

• Money to pay for your medical treatment, specialists, testing and surgery
• Money to replace your lost income while you are not working, getting treatment and recovering
• Money to pay for the expensive medicines.

There are many ways this could be approached. The simple ones are:

• A good medical insurance policy, including unfunded medicines, cover; and
• A good income protection policy

Simple! Yes to a point.

Now stay with me. As there's more than one way to skin a cat!

If you are; single, have no assets and only have a reasonable income then the answer above, income protection and medical insurance is probably the answer.

However, what if you have a few resources, parents, earning partner, assets and inheritances?

Then the approach could be a little different... 

Maybe you have cash available; maybe you have the capacity for additional debt?

This is where the more resources you have; the more varied your approach can be.

Maybe you are ok with paying for minor medical treatment but want support for the big stuff? 

Then taking a medical policy that's surgical only with a reasonable excess, may be an answer.

It may be you can weather a short time off work but not a long time, then income insurance that pays with a longer wait period is appropriate.

If we step back from being in the situation and look at it from several approaches for a moment.

To really push the boat out it might be that you are ok with servicing debt, just put it on the tab. 

In which case you could pay for the resulting cost of treatment and time off work though initially funding it with debt or a combination of resources and debt. 

Once serious enough, then you could use Trauma Cover to minimise this impact and have a trauma claim pay down some of the increased debt. Depending on age and stage this may be a cost-effective approach.

If we step back from income protection, medical and trauma insurance for a moment. Which leaves us with Total Permanent Disability and Life Cover, the cheaper of the five products on a premium $ per $1000 of cover approach.

If we say there are sufficient assets and income to borrow your way through, then holding off until permanently disabled or terminally ill may be an approach.

Don't misunderstand me here; this is an approach not for the faint hearted. There's some significant financial stress that is likely with this approach.

By taking this approach, you need to consider your options carefully.

• You need to account for your likely $ needs.
• You need to account for the interest in addition to this.
• You need to understand your limits; all resources have limits.
• You will need to take sufficient cover for TPD until age 65
• Your life cover should be taken as a level premium policy, to minimise the increasing premium risk.
• The premium needs to be able to be serviced once you retire

The downside to delaying the insurance support is you may outlive your ability to pay for the insurance, rendering the plan useless and resulting in significant debt that eats your assets.

• A very similar situation to not taking insurance at all.

Interestingly this last scenario is likely the one your parents or grandparents had, because they only had this style of cover available to them, in the form of whole of life and endowment life covers.

Unfortunately for them, which speaks to an earlier point, not all sales in their time took into account the future need. It was often a discussion on how much do you need, let's do that without doing future projections.

So when do you need life insurance?

Right now.

What do you need?

Probably a combination of all of the covers mentioned. Certainly take into account your resources, but don't necessarily forgo covers that respond earlier than life cover, the gap between the event and being terminally ill is growing. You do not want a massive hole in your plan just because you lived longer. 

You want a whole plan, not just a bit of it. With a whole plan, you have clarity around the shortfall's, how to cover them, and how much it is going to cost.

The only way to get a whole plan is to sit down with one of our advisers and discuss your personal situation. 

Then we can advise on the right cover to deliver the right amount of money into the right hands at the right time. 

Setting you on the right path with your risk management!