Young fella with income/life insurance & super questions

Discussion in 'Superannuation' started by phillis, May 20, 2013.

  1. phillis

    phillis New Member

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    not too sure where to put it, but i guess it wouldnt hurt to put it here. Havent posted for a while either, the spot price has scared me off but i do a wee bit of stalking from time to time! :D

    anyway, heres my situation. Im 26, i live out of home with my girlfriend and my dog, my rent is relatively cheap, we pay cash in hand to our landlord who are also family friends. We dont have any kids or dependents, nor are there any on the horizon. Im a welder earning approx. $45k before tax per year. Im paying $10k on a personal loan and about 4K on a credit card (snowballing my debt, not really struggling to repay it).

    While i was still living with my parents and less informed about wealth preservation/creation, my parents insisted that i sign up on a joint life insurance/income protection policy. Ive had this policy for the last 3 years and have never needed it. Im not too sure why i have it to be honest. My statement that i just received says i have approx. $18k in my super fund. My fund is with North and my income protecting with AMP. The super statement is very in-depth about where all my money is invested, to the point where it is slightly overwhelming. what certain percentages are invested in which asset class, what property funds its invested in, which national and international companies its invested with, very confusing, yet interesting.

    My question is, do i really need income protection and life insurance? Ive tried discussing it with my parents and they struggle to discuss it with me, I feel as if they dont really know what they are talking about, or as if they just 'go with it'. I have no dependents, do i really need life AND income insurance? As for my super, am i being shafted? Im more than happy to be a little more proactive with my super- that is, im willing to expose it to a little more calculated risk. Im just not entirely sure what to do. I know there are no right or wrong answers and no one response is my ideal situation, but i really dont have much of an idea when it comes to where to put my super when i dont want to self manage it?
     
  2. goldpelican

    goldpelican Administrator Staff Member

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    Assuming life includes TPD, think of the consequences of not having it.

    Income protection should be needs based - if you don't have sufficient savings to recover from say a car accident that might have you off work for 12 months, then if it's cheap enough, it's not a bad idea.

    Life insurance is a must once you've got dependants or a mortgage. I have immediate family that are suffering the effects of insufficient life insurance when the primary income earner passed away with two kids under 10 and a few million in mortgage/business debt.
     
  3. Kawa

    Kawa New Member

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    You need Income protection ( That's a given IMO).If you are laid up it will pay your basic bills depending on what product you have.With Life Insurance.I personally would hold onto it as you have it now in place.As you get older it is harder to get with the various health screening processes.

    I think your folks may have given you some sound advice though it may not be apparent at the moment.

    Keep putting as much as you can into Super.In another 10 years your balance will really start to look good.

    Hope that assists.
     
  4. MikeW

    MikeW Member Silver Stacker

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    Check with your super fund if you have some type of insurance with them. You may find you already have some form of life/ income protection insurance.
     
  5. XB

    XB Active Member Silver Stacker

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    But also check what that insurance costs!! It may well be cheaper to continue with your existing policy than to swap to one provided via your super fund.

    Also, taking into account the earlier comments in the thread, plan to review your cover (amounts etc) each year.
     
  6. goldpelican

    goldpelican Administrator Staff Member

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    Also be aware of income protection premiums being paid for by super - there's a trap there which I can't recall off the top of my head, but some benefits end up being paid into the fund, not yourself, or something along those lines.
     
  7. petey

    petey Active Member Silver Stacker

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    Isn't this what social security is for?

    Why pay for something that everyone other bastard is milking?
     
  8. trew

    trew Active Member Silver Stacker

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    Check to see if there is an industry super fund you can join

    Took me ages to extract myself out of an AMP fund once - they kept coming up with all sorts of extra paperwork to delay the rollover
     
  9. renovator

    renovator Well-Known Member

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    All good advice . You really need to weigh up your own circumstances if you really need the income protection . I would say anyone self employed should have income protection & with dependants should have both income protection & life insurance.

    Your lifestyle & exposure to risk should be a determining factor like if you ride moto X or are into extreme sports your exposure to risk is much higher than a couch potato . But in the end accidents do happen .

    An example is ive had home & contents & car insurance for over 30 years & never used them . When i total that money i could have done many things with the dough but i wanted them just in case . The amount of insurances you have is really personal choice if its not hurting your day to day living or keeping you from saving for other things i would keep both .
    .
     
  10. petey

    petey Active Member Silver Stacker

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    I agree, but the skeptic in me questions whether or not you will be covered if you are doing some sort of "extreme sport" anyway. We all know the game is rigged, insurance is no different.
     
  11. Clawhammer

    Clawhammer Well-Known Member Silver Stacker

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    Couch surfing could be classified as an extreme sport if you consider the health problems associated with a sedentary lifestyle.

    When considering Insurance, I always try to remember the story of the Sword of Damocles. The courtier that quickly gave up the king's throne and riches when it was accompanied by constant fear.

    Insurance is supposed to alleviate the fear we have in the back of our minds, not remove the risk itself... that last bit, you have to take care of yourself.
     
  12. Fykus

    Fykus Member Silver Stacker

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    im the same age as you. ive got life insurance, i figured why not... i dont have a spouse or any dependants, but i figured at this age if i die itll likely be because of some kind of accident and thatd sort of ruin my plans for eventually getting wealthy to provide for my family. This way i can sort of leave behind something for my family to help them along in life so they could pass it on to their kids and whatnot and maybe help to create a dynasty.

    i know it sounds weird but in my head it sounds ok.

    as mmm shiney once said - "A family should be the foundation of an empire, not a dwindling fountain of consumerism."

    as for the super, ive got a self managed super fund. using it to buy pm's because in the long run (since thats what super is for) pm price should be higher than what it is now, plus i can manage what risks i take rather than let some ex union person manage it for me with an industry super fund and lose money and still charge me for it.

    but yeah, thats just what im doing. take from it what you will, but imo the life insurance is probably a good thing to keep so long as its not causing any financial hardship to you.
     
  13. Contrarian

    Contrarian New Member

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    Trauma cover is the only one that cant go inside super, but I think it makes sense to have the rest in super.

    On a needs basis though. Even pays to take into account how much sick leave/long service leave you have owing when calculating how much cover is needed.

    C
     
  14. rap53

    rap53 New Member

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    Hi phillis,

    My thoughts are:

    1) First priority - get rid of that credit card debt! Every dollar you are paying in interest is dead money. The interest is huge over time.
    2) Then get rid of the personal loan. Never get a loan for an asset that goes down in value (i.e. a car) if you can afford to avoid it. Think about it. You buy a car for $15k. Pay it off over 5 years, costing you say, $22k. After 5 years, the car is worth $5K, and you have flushed $17k down the drain - more than the purchase price of the car.
    3) You are young, so invest aggressively in high growth assets.
    4) Often times, your super fund has life and disability insurance in their default funds. Check this out to avoid paying for two insurance policies.
    5) Total disability insurance is probably worthwhile.
    6) Life insurance - if you don't have dependents, you probably don't need it.
    7) $18K in super is a good start - Make sure you are in a low cost industry super fund like Australian Super Fund. Fund performance often comes down to how much the fees are. I non-industry super fund alternative is Raiz Super, which matches the industry super funds in terms of fees.
     
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  15. Lead Chucka

    Lead Chucka Member

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    G'day mate, good questions to ask at 26. Look at life/TPD/income protection insurance as a necessary evil - just like you do with car and health insurance. You don't want to ever have to rely upon them, and as goldpelican said, 'think of the consequences of not having it'. As a welder, you are in a higher risk category than a white-collar office worker so you need to acknowledge that as a factor. One of my mates is a boilermaker and by his early-30s needed shoulder surgery from all the overhead welding he had done. A few years later he had to get the other shoulder done as well. If you were to end up in a similar situation, hopefully, it would be sorted under WorkCover - but what if it isn't? I look at these insurances in these terms:

    Life insurance
    What liabilities will your partner/family be stuck with if you die? Have enough insurance to cover all debts and obligations plus maybe 10% buffer. If/when you have kids, you would need to factor in the costs of raising them (school etc) until they are 18. As you get older and buy a house or start a business etc, review and increase/decrease this insurance accordingly.

    TPD insurance
    Work out what your annual living costs are and then look at a multiple of this figure. You also want to include the figure from your life insurance so you can pay off your debts. If you can't properly work again, you don't want to be carrying the burden of a mortgage, car loan etc. So the amount covered by this insurance will usually be higher than your life insurance.

    Income Protection
    Generally, most insurance defaults to 2 years cover. I've always selected the option for payments until the age of 65. This will increase the premium though. One way to reduce this premium is to opt for the 90-day waiting period. If you can keep enough savings to cover 3 months living expenses, then go for this option.

    As others have mentioned previously, review your cover annually at least. I'm in HostPlus and their insurance is much cheaper than my previous fund. I ended up saving about $2000 a year on insurance premiums alone by moving. Look around and find the right fit for you and your circumstances. You are already doing the best thing possible, and that is educating yourself! Well done
     
  16. whinfell

    whinfell Well-Known Member Silver Stacker

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    Lol, the OP is now 33 - the original post is dated May 2013 ;)
     
  17. Lead Chucka

    Lead Chucka Member

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