Personal risk management plan – do you have one?

Risk Management Plans don’t only apply to businesses – every person and family should also have a plan to help them cope in the event of an unexpected crisis.

No doubt you have insured your car as the risks of damage are obvious to you on a daily basis. You will almost certainly have insured your home and contents against fire, burglary or storms. But what about your greatest asset: your income?

Statistics show that at a working adult earning an average income is worth more than $3.4 million[1] over a 40-year full-time career, assuming no increase in earnings. How would you cope if your family’s primary income earner met with serious illness or accident?

Unfortunately, statistics also show that the risks are greater than generally recognised. Look at these:

• Cancer has become Australia’s biggest killer, accounting for more than 45,000 deaths in 2017.
• Some 4,400 people with dependent children die in Australia each year.
• In 2005, 3,529 deaths were attributed to diabetes. By 2017, this had increased to 4,839. Up 37%.
• According to Australian Bureau of Statistics of the 531,800 people who had suffered a work-related injury in 2013-14 only 34% received worker’s compensation payments.

Your Risk Management Plan

Professional guidance is crucial in establishing your risk management plan. You need to consider the extent of your financial commitments and review what assistance may already be in place. This may include insurance cover within your superannuation, employer protection, existing insurance policies or other sources.

Fortunately, a range of insurance policies are available to cover the risks you confront. These include:

• Loss of Life or Total & Permanent Disablement. By including this in your superannuation it is effectively a tax deduction as your superannuation comes from pre-tax income.
• Income protection. A critically important cover for income earners. It will provide you with income in the event of sickness or accident for a predefined period. If you are a small business operator you can include the costs of operating your business while you are incapacitated. The premiums are a tax deduction.
• Trauma insurance. This is sometimes referred to as critical illness insurance and provides for a lump sum in the event of suffering a specific injury or illness. It is ideal for a non-income earning partner who may not qualify for income protection.
• Child insurance. Many families are devastated when a child is struck with a critical illness. This may mean one or both parents having to give up work while the child undergoes lengthy treatment. Some companies are now providing specific policies to assist the family in such a catastrophe.
• Health insurance. While free treatment is available through the state hospital systems, this may involve traumatic and expensive delays. It is highly desirable for families to have health insurance cover and the cost may be minimal when you consider the additional Medicare Levy you may otherwise have to pay. Further, the cost is subsidised by the federal government.

[1] Calculated as Full-time Adult Average Weekly Total earnings $1,650 x 52 weeks x 40 years.