(Provided with permission by Tower Life Ltd)
"Steve had been working late and was on his way home when someone ran a red light..."
Lucy and Steve were in their early twenties when they met at university. Steve was doing computer science and Lucy an arts degree majoring in communications. They travelled through Europe after university and planned to marry once they'd returned home and established their careers.
After returning to Australia and working full time for three years they pooled their savings and bought a house with a mortgage of $320,000. They considered themselves to be earning good money with Steve earning around $95,000 as a computer programmer, and Lucy $60,000 as a journalist at their local newspaper. They took a lot of pride in renovating and furnishing their home and enjoyed a relatively comfortable lifestyle, even though their mortgage represented a large proportion of their income.
Lucy and Steve had discussed taking out personal insurance but paying off the mortgage dominated their thinking and expenditure and any thoughts regarding insurance were easily put aside.
How their world fell apart
As it turned out, personal insurance should have been a higher priority. Steve had been working late and was on the way home when someone ran a red light. Steve's car was hit and he suffered severe spinal injuries which affected his ability to stand or sit for long periods. Following an extended stay in hospital and intensive rehabilitation Steve was released but was unable to return to work full time.
Once Steve's sick leave expired they were unable to meet their mortgage repayments and were forced to sell their house and move in temporarily with Steve's parents.
Fortunately with Lucy continuing to work full time they were eventually able to rent a small apartment but they depended heavily on help from family and friends. Their only hope for a better future was for Steve to find part time work which would allow him to ease himself back into the workforce.
What could they have done differently?
A suggested personal insurance strategy for Steve and Lucy prior to Steve's accident might have included:
- An income protection plan of $5,900 per month for Steve and $3,750 for Lucy with benefit payments to age 65. This would have replaced 75% of Steve's income after his accident and would continue to pay him while he was unable to work, or supplement his income when working part time.
- Critical illness insurance to assist in mortgage repayments and the cost of medical treatment and time off work if either suffered a major medical condition such as cancer.
- Total and permanent disability insurance equivalent to life insurance cover, so that if either were permanently disabled they could extinguish the mortgage. Additional requirements for refurbishments, ongoing med)cal expenses and home care should also be considered.
- Life insurance cover of at least $320,000 to extinguish the mortgage should either die prematurely. Additional requirements such as funeral expenses and time off work should also be considered.
This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, we recommend you consider, with or without the assistance of a financial adviser, whether the information is appropriate in light of your particular needs and circumstances.
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