Life, Total & Permanent Disability (TPD) Insurance, Income Protection and Trauma Cover have relevant and important strategy roles to mitigate identified financial risks if certain unforeseen events occur. Importantly, in our 30s or 40s, these unforeseen events are statistically rare and correspondingly not expensive to insure. But of course, risk of mortality accelerates with age, and with it the costs of your insurance strategy. Within this reality are traps and opportunities.

Our clients, a business owner and spouse, had entered into an insurance strategy in his late 20s and early 30s. A primary income earner with three children and a spouse, they embarked on business ownership, developing a family home and committing to private school fees. Now in their 50s, it has been a good journey but one which is still in progress.

They identified a funding shortfall that, through debt reduction, increase in business assets and superannuation savings, would reduce over time. Significant family costs in the form of school fees will incrementally reduce through their 50s and complete in their late 50s. We can see this in the below stylised diagram, with the need for insurance ‘step-in’ reducing over time (shaded) such that a point of diversified, strategic self-funding is achieved. In their early 50s, they need to seriously consider their insurance gaps and needs. Some interesting facts though…

Adequate levels of insurance over $1 million typically require health checks and assessment. Our business owner had sustained a spinal disc injury that was disclosed and an irregular ECG at the health assessment. These health issues resulted in some exclusions (loss arising from back injury) and loadings to the premiums. The loadings added 50%-100% to certain premiums. An additional cost, but manageable with lower base premiums in their 30s and 40s. There was also escalation in the insured sums for CPI and general increase in insurance premiums. What was an insurance package in their 30s of $10,000 to $13,000 p.a. had by their early 50s exploded out to over $50,000 p.a.

We addressed the insurance strategy, and engaged with one of our trusted insurance consultants, in this instance, PNO Insurance (a partner in the Cameron Harrison Specialist Network). The key items were fourfold:

The benefits to the client are immense. In financial terms, they saw an over 60% reduction on their insurance strategy costs, have the significant benefit of a recalibrated and focussed business owner and succession strategy, made changes to gearing/debt arrangements, and are ‘race trimmed’ to be able to execute their plans.

Cameron Harrison have been advising business owners and their families on asset allocation and intergenerational wealth management for over 50 years. We have demonstrated over a long period our ability to manage investments through both the good times and bad by keeping the client at the centre of our business.

To discuss our approach to wealth management or any other inquiries, please contact us on +613 9655 5000 or contact our experts here.