Ten years ago, Justine was newly divorced and raising two teenage boys. She had no assets to her name and knew she would need to go into serious debt to keep a roof over her boys’ heads.
Six years ago, I met Justine for the first time. She had a large mortgage and was worried about what would happen to her children if something happened to her. If she passed away, she needed to make sure the mortgage was paid off so her kids still had a place to call home, and to provide ongoing funds to set them up for their futures. Being single, if she suffered total and permanent disability or was diagnosed with a serious illness, she would have to fend for herself, managing medical bills alongside her regular expenses with no income coming in. In short, she needed a lot of insurance cover.
I helped her set up her insurances, balancing her needs against her limited budget. One way we addressed her cashflow issue was to structure as much of her insurance as we could inside superannuation.
Fast forward to today and, thanks to property investments and a lot of hard work, Justine has decided to retire – at age 55!
Justine’s investment properties cover her mortgage payments and provide her with $2,300 income per month. She now has a partner who she lives with in his property. She pays him nominal rent and does temp work in between holidays and when she needs additional cash. Her sons, now in their 20s, have left home and are no longer dependent on their mother. Things have certainly changed!
Which brings us to her annual review. Justine told me that now she wasn’t working she was worried whether she could afford to continue to pay her insurance premiums. I often hear from clients who are having money concerns that they want to cancel their policies because they think they can’t afford it. But cancelling your cover can sometimes be the worst possible option, because it leaves you exposed.
However, in Justine’s case it was clear to me that she no longer needed the same insurance plan as she did six years earlier. First, we looked at the amount of insurance cover she actually needed, in light of her property portfolio and the change in her children’s circumstances. Next, because cashflow is no longer as much of an issue, we restructured her insurance cover to sit outside super, so Justine can maximise her retirement savings. Again, we made sure to balance her insurance needs against her budget constraints.
Does Justine have the ‘Rolls Royce’ of insurance cover now? No, but she doesn’t need it. She has sufficient cover for her needs based on her current circumstances.
The moral of the story is that annual reviews with your financial adviser are important because things change. Not all annual reviews will lead to an increase in cover – we look to decrease cover if appropriate too, as well as restructuring if that better meets our clients’ needs. So, before you start thinking of the reasons why you can’t afford the time to see your financial adviser for your annual review, ask yourself if you can afford not to.