When I help young clients create a game plan for life, top of the priority list is always protecting their loved ones. I’m going to assume many of you want the same for your loved ones… so I thought that sharing my personal protection plan with you may help.
FYI; I am 38, I have a 2-year-old daughter (Maddi), wife (Kate) and an average size mortgage.
My protection plan (comprising both preventative & reactive strategies)
Prevention – There are a lot of steps we can all take in order to minimise the risk
of something going wrong.
Health: I exercise regularly and I’m lucky because I enjoy it. I also meditate (just 10 minutes a day) and I find the time to do things I enjoy. I use my brain within my role as a money coach, and Kate and I have taken on learning a new language (albeit slowly). These actions not only help me to better enjoy life today but can only help in assisting me in reducing my chances of getting sick or injured later in life.
Employment: I spend a lot of time ensuring my business (& what I do) remains relevant and of significant value to my clients. With AI and the changes going on in the world, one of the biggest risks to all of us isn’t becoming sick and not being able to work, but instead the risk our job becomes redundant. You are the only one who can prevent this from happening. We need to keep relevant and educated, or ensure we build assets to provide us with other forms of income.
Emergency cash: We make sure we always have enough money to see us by for a few months. This provides me with peace of mind and will ensure we’re fine if the unexpected happens. It’s also handy if the car breaks down! We leave this money in an offset account attached to the mortgage as it effectively reduces the loan and therefore the interest cost, versus having the money in a bank account and paying tax at your marginal tax rate.
Reaction - This part of the plan takes care of the things I cannot control. For me, it is not an option to negate this because its no longer about me and what I want, but what is best for my family.
Life cover: I have taken out good quality life cover so if anything happens to me the payout will eliminate our mortgage and leave a lump sum of money to assist Kate with living costs, as well as education funding for Maddi.
Disability cover: Similar to life cover, I want this to eliminate the mortgage and leave a lump sum to derive an income from. Because I am still alive, we will require other forms of protection to assist (see below).
Income protection: This is likely the most important cover you can invest in. If I cannot work due to sickness or injury, it pays 75% of my income until I am 65 years old. It can, if need be, be used in conjunction with disability cover. For example, the disability cover might pay off our mortgage, then the income protection pays me until age 65. Its only 75%, but I no longer need to repay the mortgage.
All these forms of life insurance cover are held in my super fund so I do not have to pay the cost out of my pocket (after tax). I chose level premiums (meaning the premiums don’t increase due to my age) as I need cover for a long time (young daughter and 30 year mortgage) and the cost of not doing this becomes very expensive later in life. All premium costs are tax deductible to my super fund. Not to confuse you, but, my income protection cover is also partly held in my own name (It’s known as a flexi-policy structure). This is to ensure I can access benefits without them getting stuck in my super fund due to legislative barriers.
No commissions! - As a “financial adviser”, I am able to remove all the commissions, saving us approximately 40% on the cost of the cover each and every year. Over the next 30 years or so this will save us a significant amount of money! And yes, it means we will retire with more…
Will: I have a valid will which was prepared by qualified legal experts and yes, I strongly encourage you to do the same. My will includes what is known as a testamentary trust to be enacted if such a time came where Maddi was to inherit part, or all of my estate. The trust is like a bubble around any assets or money, protecting them for Maddi until she reaches independence. If you don’t have a valid will and pass away, you are said to have died “intestate” and long story short it causes a family member or friend a large paperwork headache. Google it to find out more.
So, there you have my protection plan, hopefully in plain and simple English. It is a work in progress and I amend and adapt it each year with changes in our lives and changes to laws and products that may offer new potential strategies. Please be mindful that this is my plan for my family. This information is general in nature and has not been tailored to your unique needs and therefore it is not suitable for you. This stuff is important and if you want more information or to chat about your situation please get in touch. I am really passionate about getting it right as it’s the bedrock of any smart game plan for life.