Young families are the people most pressured by high interest rates and the recent big increases in mortgage payments. Raising rates is one of the few levers the RBA can pull to control inflation, and it has an uneven effect across the population.
Young families are also the people who have the greatest need for life and personal insurances. They usually have large debts and young children many years from being financially self-supporting. If a disaster should happen, or their income stop, it would be a huge problem.
In the battle to pay the mortgage other things must be sacrificed. Life insurance produces no return, until it is needed. So it may be an early candidate for cancellation. It should not be.
Making it more difficult, premiums have risen more than inflation over recent years, due to increasing claims related to mental health, obesity and diabetes.
There are four types of personal insurance. Life cover pays a lump sum on death that can be used to pay off a mortgage and raise children. TPD insurance pays a lump sum if a person becomes totally and permanently disabled. It can be used for similar purposes, and to support the disabled person.
Income Protection insurance replaces three quarters of a person’s income if they are unable to work due to illness or injury. Trauma cover pays a lump sum if certain major illnesses occur.
Some may think Centrelink would provide their income needs. The Disability Support Pension pays just $1,064 per fortnight, certainly not enough to pay a mortgage off.
There are ways to keep the cost of necessary insurance down. Life, TPD and Income insurance can be purchased and paid for in superannuation. People can buy cover without the premiums reducing their personal cashflow, though they will reduce retirement benefits.
It may be possible to replace personally owned insurance a person is struggling to afford with cover held in their super account. The quality of the cover may be lower but they can pay a little extra personally for extra features and ensure best quality cover.
A person may also be able to authorise their insurer to contact their super fund each year to request a rollover payment to meet the insurance premiums.
Income insurance premiums are tax deductible, reducing the net cost. Extending the waiting period before benefits are paid will also reduce the cost. Premiums can be stepped, cheaper now, or level, more costly now but much cheaper long term.
Some insurance companies also offer premium discounts based on a person’s BMI, activities, healthy lifestyle choices and taking regular health checks.