Simon was a fit and active man in his mid-forties who drowned while swimming in the surf on a family vacation. Witnessing this tragic occasion unfold from the seashore were Simon’s wife, Sam, their 15-year-old daughter Ash and their 12-year-old son Josh.
Family and friends were an incredible help throughout the next few days, however quickly after the funeral. Even in a state of profound grief, Sam had to assess the family’s finances. Till that point, she had no idea that the family had been among the 95% of Australian households that didn’t have enough range of life insurance coverage.
Sam, Ash and Josh are left alone. Over 9,000 Australian women and men in the prime parenting age bracket of 25 to 50 die every year. All up, one in 5 households will suffer the loss of a guardian, or a guardian will endure a critical illness, accident, or injury that stops them from working. It isn’t uncommon for households in these conditions to lose half or most of their income.
However, these chilly numbers fail to convey the more profound impacts that the lack of a guardian has on a household.
At first glance, the family appeared to be doing well financially. Two years earlier, Simon had been promoted to a government position with a generous salary. This allowed the family to move into a stunning newly constructed residence near the private school Ash and Josh attended. Sam ran the children’s taxi service and worked half-time, placing her income in the direction of the annual household vacation fund.
Simon and Sam were the first to confess that they loved an exquisite lifestyle. To complicate matters, underpinning that lifestyle was a big mortgage with repayments that soaked up a sizable portion of Simon’s income, and his premature death was to have far-reaching consequences.
A fast look at the numbers.
Simon was not poor financially. He accumulated $300,000 in superannuation and, using his super fund, had $250,000 in life insurance. Nonetheless, as is the case in many Australian families, a mixture of lack of qualifications, lack of experience, and absence of the workforce meant that Sam’s income capability was a fraction of Simon’s. With an outstanding mortgage of over 1,000,000 dollars it was clear to Sam that even when she used all of Simon’s superannuation and insurance coverage to pay off the mortgage and work full-time, she would still be unable to meet the mortgage repayments.
Ongoing private school tuition would even be well beyond her budget. This introduced Sam to a devastating but unavoidable outcome: she must sell their home, move to a different reasonably affordable suburb, work a full-time job, and enrol Ash and Josh right into a public school.
Because Sam, who had no expert guidance, accepted the first offer on her home and sold it well below market value without considering the unforeseen stresses. Her sole focus was to eliminate the mortgage.
The human consequences
It might be safe to say that this was the climax of the story. Sure, the family suffered a significant drop in living standards and the kids missed out on numerous experiences they otherwise would have loved. However, Sam, Ash and Josh weren’t left impoverished. Sam managed to build them a shelter over their heads, and the children continued with their schooling, albeit at a separate school.
Nonetheless, the vital part of the story lies in the emotional impact of the loss of a parent.
Ash was in the second semester of high school when her father died. The shift to a new school at a crucial point in her schooling left her with clinical melancholy. This can be a shockingly frequent problem, afflicting nearly 70% of kids who have to change schools for financial reasons. And while Josh prevented the devastating results of melancholy, regardless of Sam’s greatest efforts to offer him a normal life, he felt he needed to grow up quickly. This was because he needed to fill his father’s shoes.
Simon’s death also had a financial impact on his mother and father. Even though they were pensioners, they did their part to help Sam give some extras to Ash and Josh. And with Simon being a young child, his parents would miss out on the support he had intended to provide as their care needs increased.
Why were they unprepared?
While the cost of life insurance is the most common reason somebody gives for not taking out suitable cover, Simon’s failure to protect his family was resulting from a blend of circumstances.
Feeling healthy and strong, he envisioned living a long life. That is regardless of accidents and suicide being the most common causes of death throughout the key parenting years. And while he wasn’t the only one who viewed insurance as unnecessary, with a demanding profession it was simply not something Simon thought too seriously about.
What might have been?
Partnering up, taking out a mortgage. Having kids. Every one of those occasions must have triggered a silent voice in Simon and Sam’s heads telling them: “Get life insurance”. And with each critical change in their circumstances, that whispering voice must have piped up: “review your life insurance policy”.
Why? Well, the apparent response is that this may have allowed Simon to depart the family with sufficient funds available to repay the mortgage, cover private schooling charges through to the end of high school and provide an ongoing income to fulfil regular living expenses.
However, the fact is that it would have dramatically lowered the risks of Ash’s melancholy. It would have eased Josh’s sense of obligation to grow up fast, and relieved Sam of a huge burden. It might have helped keep Sam’s and the kids’ friendships alive and left Simon’s parents with the assurance that everybody was taken care of.
Making it occur
Life insurance coverage comes at a cost. And for sure, a better cover would cost a little more than a cheap one. It can be difficult, and it requires some cautious planning on a subject that many would rather avoid. As a whole, it’s one thing most people give no attention to.
However, life insurance is also especially critical, and there’s an art to getting the balance between cost and benefits just right. It is therefore imperative to seek the advice of a licensed financial adviser who thoroughly understands your individual circumstances. This adviser can present you with options and clarify the results of your selections.
Money alone cannot heal grief or fill the gaps created by the loss of a life partner or a parent; however, it can provide protection against a great deal of others’ pain. Death and disability usually strike without prior warning, and if, like 95% of Australian families, yours is underinsured, now is the right time to do something about it.