Does Generation Y need Insurance?

Today in the office, a conversation came up in which the question was raised, which type of people need insurance the most? Is it mature, middle aged men and women with steady incomes, who have already accumulated some valuable assets that need protecting? Is it older men and women, who may be facing impending medical issues in which health insurance could save them huge fees? Perhaps not many people would answer that it's Generation Y who needs insurance the most. After all, just out of school and starting their lives, they likely don't have much risk of ill health or the loss of any hugely valuable assets. They probably are renting or flatting and don't own a home, and their car might be cheap and second hand.

However, these assumptions might need revisiting. It might just be that the very fact that Generation Y (20-30 year olds) have lower assets and incomes that means they need it the most. How so? Well those with accumulated savings, assets (such as a home or business) have more options available to them if something goes wrong. They could sell the house, sell their shares in the business or fall back on life savings to keep them and their families going. Those without these assets won't have this option.

Let's say critical illness strikes. Generation Y is statistically the most likely to be living pay cheque to pay cheque. With no assets to support them, they'll likely have no way of meeting their cost of living without falling back on relatives or other forms of support that might not even be available to them. Without anything behind them, Generation Y could be one unforeseen mishap away from financial dependance or worse, having nowhere to live or being unable to afford medical treatment or surgery.

What do you think of when you think of Gen-Y? Could they have more use of insurance than older folk?

On the other hand though, living pay cheque to pay cheque doesn't leave much disposable income to spend on insurance premiums. This can make insurance seem like less of a priority. So, what they need is insurance that will protect them, without breaking the bank. Is it possible? And just what insurance should Gen-Y invest in first? We have some suggestions:

1. Health Insurance

Health Insurance should be first and foremost. If you are young enough, you may still be covered by your parents policy, but as soon as this lapses, getting health insurance of your own should be priority number one. Between the ages of 21 and 28 I've been spared more than $15,000 of medical costs because I had insurance. Plus, if you invest in it while you're young and healthy, your premiums will be as small as possible, rather than leaving it until later when pre-existing conditions may have developed, leading to increased costs and complications.

2. TPD (Total Permanent Disability Cover)

The premiums for a TPD policy tend to be much cheaper than a Trauma or Life insurance policy, and it can come in handy if you suffer an accent which renders you unable to return to your job. Since accidents and injuries may be more likely for a younger person than a critical condition diagnosis, TPD could protect you from issues Gen-Y is more likely to face, at a fraction of the cost.

3. Redundancy Cover

Similar to the above, redundancy cover is a cheaper form of income protection policy (previous articles have dealt with this form of insurance in detail), which will protect your income if you are made redundant or leave your job involuntarily. It can also cover mortgage payments if you are paying off your first home, making it a sound investment for not so high a price.

4. Life Insurance

Perhaps not as essential, but depending on your situation, it could be a very good idea. For those with no dependants relying on them and no debts, life insurance is more than likely surplus to your current requirements, but if you have a young family, debt or someone depends on your income to provide for them, life insurance for Gen-Y is a good idea. The younger you are, the cheaper your premiums will be, even moreso if you have a clean bill of health and are a non smoker. So as soon as you have people relying on you or a considerable debt to pay off, think about life insurance as a way to ensure everything is taken care of in the unfortunate event of your passing.

Five Sticky Situations Insurance Could Bail You Out In

1. Being diagnosed with a chronic condition.

As described in one of our earlier posts, at the age of 21 I was diagnosed with Crohn's Disease. Luckily, my conscientious mum had organised me health insurance cover before this happened, and all of my surgery and specialist costs since then have been completely taken care of by Southern Cross. Doing some loose calculations, those costs would have been upward of $20,000 so far, with unfortunately more to come in the future. If I had waited and investigated getting insured after I was diagnosed, I would have either had to cope with a large policy loading or my pre-existing condition may have been excluded entirely. So, having insurance already, before I was diagnosed kept my premiums affordable, and spared me a debt in the tens of thousands.

2. Being disabled in an accident and being unable to work.

Some accidents or conditions can be lived with and managed, and won't affect your ability to earn a living. But many of them will, either for a finite period of time or you may be unable to return to your profession indefinitely. If you have Total Permanent Disablement Cover (which is very affordable in terms of premiums) or Income Protection, you won't have financial burdens adding to your stress during already trying times while you recover. You can focus on getting well, and your family will be secure while you do.

3. Losing Your Job/Being Made Redundant

Unfortunately, it happens everyday. People lose their jobs or are made redundant and left with a whole bunch of worries, including meeting the bills, paying the rent all while finding another job quick smart. As covered a little while back, redundancy cover is a cheaper form of income protection which can protect your income while you search for new employment after being made redundant. As long as leaving your employment wasn't voluntary on your part, you can be covered! Read More Here.

4. Having a crucial person within your business fall ill.

Some of us have more to worry about than just themselves. If you own or manage a business, you may be relying on many key people underneath you to keep your business running, keep it profitable and ensure its managed properly on a day to day basis. If one of these people, say a co-director, a production manager or a reliable member of staff suffers a serious illness, condition or injury, you could be just as stuck as if one happened to you yourself. Key Person Insurance Cover is designed for this circumstance to protect your businesses profits if one of your most crucial employees goes down. 

5. Being stuck overseas due to flight cancellations, injury or natural disasters.

Another one that happened to me recently! After American Airlines cancelled my connecting flight back to Los Angeles, I was left stranded in Pensacola, Florida with no way to make my flight back from the States to Auckland. My case was comparatively minor to cases of people in my life I've known of, but paying for the extra nights hotel, meals and transportation would still have set me back close to $1,000 without travel cover. Other's I've known have had it far worse as the Icelandic Volcano eruption a few years back grounded flights all over Europe for the better part of a week, forcing them to watch as their extra costs skyrocketed. Trust me, being overseas hoping that your plans and schedules will all fall into place seems a lot more of a stretch to me than it did before. 

Thanks for reading! Visit www.sprattfinancial.co.nz for more info.

Redundancy Cover: How it Works.

Redundancy Cover (also sometimes known as Loss of Job Cover) is a more specific form of income protection that will protect you from the loss of income that you could suffer if you are made redundant or lose your job involuntarily. As a more specified and less broad type of cover, redundancy cover is far cheaper in monthly premiums than general income and mortgage protection policies, making it a sound option for those who want to be protected but cannot afford the premiums for more costly Income Protection cover.

In general, payment will begin 30 days after you are made redundant or lose your job. From there, monthly payments will help you manage your expenses for a period of up to 6 months to allow you enough time to get back on your feet. Furthermore, you can still claim on your redundancy cover even if you have received a redundancy payment from your employer when you were let go. This will not effect the amount paid out or the frequency of the payments in any way. You can claim TWICE in total for any redundancy cover benefit, meaning that you are covered for a period of 12 months in total, as long as you have been employed a certain amount of time in between the two six month claim periods.

The sum assured of a typical redundancy policy will be calculated as follows:

- 40% of your income before tax.
- 110% of your mortgage payment.

Whichever of these figures is higher will be your sum assured, and when you claim on your policy that is the amount you will be paid each month to help you maintain your lifestyle while you look for the next job that's right for you.

One of Redundancy Cover's benefits is that it allows you the security to take the time to find the job that's right for you and not having to make impulsive decisions based on financial strain.

Unlike other forms of insurance, Redundancy Cover is NOT age related, and premiums will NOT increase each year due to age. This means that you will know that redundancy cover will always be affordable and will fit within your budget as the years go on.

Recently, we have had a client who was extremely thankful for the redundancy cover we had arranged for him. Out of the blue, he lost his manufacturing job after having only recently acquired a new house and with it a large mortgage. When he claimed, the redundancy cover kicked in and covered all of his mortgage payments for him, allowing the family to live comfortably off the income of his spouse. Without it, he told us, he would have been forced to lose his house that he had worked 15 years to be able to afford a downpayment for. The prospect of that rightly terrified him, and with a shortage of specialised manufacturing work in his region, it took him until the fifth month after his redundancy to secure new employment. Now, he has resettled in his new job, has kept his house and the family finances are in good shape. All it takes is a single thing to go wrong and he could have lost everything he had worked so hard for, we were extremely glad that he didn't. He was too.

Redundancy cover does work, and it is not expensive. Regardless of whether you have other forms of insurance or none at all, redundancy cover could be a very important boon to your life and won't set you back all that much. If you have any questions of just how much you'll pay, or you wish cover to be arranged for you, we can help. Just drop us a line anytime.

What is Mortgage Instalment Insurance?

Most people are aware of the main types of insurance related to risk (life insurance, health insurance, income protection), but there are equally valuable but lesser known types of insurance which can be of great use in protecting your assets for a cheap price. In this case, mortgage instalment insurance can specifically cover mortgage repayments, safeguarding your home and your lifestyle in the face of unforeseen events.

- Mortgage Instalment Insurance pays your monthly mortgage repayments in the event that you become disabled due to illness or injury. Mortgage Insurance gives you four different payment period options each with different premium costs. The options are to have the insurance pay your mortgage repayments for a period of 2 years, 5 years, until the age of 65 or until the age of 70. 2 years will result in the cheapest monthly premiums, 5 years will be more expensive, and payments until the age of 65 or 70 will be the most expensive options.

- There is also an option to choose Redundancy Cover, which also covers your payments in the event that you are made redundant from your job. Redundancy cover will meet your mortgage payments for a period of six months to allow you adequate time to transition to new employment.

- Mortgage Instalment Insurance will pay 110% of your monthly mortgage repayment, calculated at the time of taking out your insurance policy. This is designed to cover any interest rate rises, as well as additional expenses such as land rates.

- If your personal circumstances or your repayment amount changes, you can contact us or your insurance provider to re-assess your cover.

- Mortgage Instalment Insurance is a more specified form of insurance that only covers mortgage repayments in the event of illness, injury or redundancy. Because of this, it is a considerably cheaper option than taking out more general lump sum insurance cover. Your home is the most important asset you have, and mortgage instalment insurance offers a simple and cost effective way to ensure your home will not slip from your hands in the event of unforeseen circumstances. We think it is well worth considering.

If you are interested in securing Mortgage Instalment Insurance or you have any further questions on if this type of cover is right for you, don't hesitate to get in contact with us anytime and secure your mortgage at the lowest possible price.

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Your house is simply too valuable to lose.