Protecting your assets

Crown Money, where we show you how to pay your home loan off in up to half the time of a normal bank loan. Welcome to the Crown Money podcast. I'm Jessie Urch and I'm joined by Scott Parry. Hey, buddy.

Hey. How you doing?

Yeah, good. The sun is shining, so I'm looking forward to spring and eventually summer. Feels like it's been a long, cold winter, so.

So speak for yourself. I was lucky enough to dart off to Europe and check out a little bit of a European summer and wow, I need to be doing that a lot more. That is a happy, happy place, especially when you know what's happening downtown. Winter Australia. So good to be back. I'm fresh, I'm revitalized. I'm ready to swing the bat. So today let's talk about asset protection.

Yes, yes, Asset protection and wills. Now we've got a particular story, don't we? Something that's happened recently.

Unfortunately we do. So for me, I think insurance is just peace of mind. You're buying peace of mind. That's all it really is. And I'm a big, big believer in life insurance and I'm a big, big believer in income protection. I think they're the two most important trauma insurance is obviously if you get or suffer from a cancer, heart attack, stroke, you don't necessarily die. So they're very, very often claimed upon. But they're probably the most expensive insurances. But life insurance and income protection, for me, if you have debt, that's essential. This is what all insurance is going to protect you in the event that you were to pass. You don't want to leave your family, your loved ones with any sort of debt. And so there's nothing better than that loved one who's going through such a traumatic time to not have to worry about finances or money, like just to take that weight off his or her shoulders is everything. And unfortunately, being in a situation where I've had a few clients die over the last 20 years and luckily they're all being insured and they had their assets protected and it was the best case or worst scenario. And so we just had a client pass away. Unfortunately this week, this client was a long term client of ours. I remember sitting with him and he has three young kids and we were talking about asset protection and making sure that if he was the past and his family's gonna be protected. And he had about a mortgage of around about 750,000. And so my mindset is normally to definitely have enough life insurance to pay off the mortgage, but also to have some for the partner to not have to work straight away, get back on her feet or his feet. And so we sat down, we talked about the $750,000 home loan. We want to pay that out, but also give the family a little bit to work on if in the event his income is no longer coming into the household. So we set a life insured policy amount of 1.75. He'd been paying that for well over 10 years now. Like most people, you always look at your insurance premium, think, oh man, do I really need this? And Murphy's Law is crazy. Like the minute you cancel it is the minute you actually do need it. And so sadly, sadly this, this week he passed away and the wife called and said, hey, I remember we had some insurance, I can see the premiums coming out. But she wasn't aware of how much they had or where it was. And we were lucky enough to tell her, don't worry, everything's going to be okay. We've got life insurance policy here of 1.75 that's going to be payable to you to take care of the family, the kids, you don't have to work again. The mortgage is going to be paid for and you have about a million dollars left over. So this is real, it does happen. And if you don't have a mortgage or you don't have any kids, I'm not really a big fan of life insurance. I don't think it's got a really strong purpose. But in the event of death, you do not want to be leaving your loved ones with financial stress.

Absolutely. And what about life insurance inside super, things like that?

Yeah, I mean, life insurance inside super has its benefits, also has its negatives. I mean, the benefit of that is obviously there's no cash flow burn for you because your super fund's paying for it. But the negative effect of that is chewing to your super balance, which doesn't allow it to compound. And so if you're contributing more into super to basically offset that insurance premium, then that's a really wise idea because the compounding effect of those fees coming out for insurance premiums will definitely reduce your super balance in the long term.

Okay, great. And does it matter that it's inside your superannuation in terms of being able to get that money out again?

Yeah, it's certainly not as fast or effective and it's taxed differently in terms of that. The money going to super is obviously pre tax money and so any payouts, it's very complicated. You certainly need to speak to a financial planner around this. But it depends on, are they a beneficiary, are they still married? All these sort of factors come into play as to how they work out the tax on it. But you usually do have a fair chunk of tax payable if the policy is inside super. If it's outside of super, it's a lot cleaner, it pays out faster and usually isn't taxed in the same way.

So that's worth a conversation with a financial planner just to kind of work out the mechanics of how to do that. Okay, that's great. And then so life insurance makes sense. And I think a lot of people understand that. Yeah. What about things like your income protection and things like that? Is that, is that kind of worthwhile in this market?

If you are insuring your car, but you're not insuring your income, you're crazy. Like the most important asset you've got in your whole financial life is your earning capacity. And if you can't work because you get sick or get injured, you still need that income. Hitting your home loan account to pay for the mortgage, to pay for the, the rates, to pay for your living expenses. And so I think income protection is imperative if you've got debt. And so income protection usually pays you 75% of your gross salary if you're unable to work due to sickness or injury. And you can have that paid up until the age of 65. Some policies have five year benefit period, but you always want to get that until the age of 65. If you can, you can delay the waiting period. If you've got a lot of long service leave built up or a lot of annual leave built up, you can delay the start date of that policy to say 90 days from when the accident happened instead of 30 days or even delayed longer. The longer you delay that start period, they call it a waiting period, the cheaper the premium is. But income protection is insanely important. And you think about it like you're insuring these liabilities like your car, but you're not insuring the biggest asset you've got, which is your income and which pays for all your car insurances, pays for these other bits and pieces. It pays for everything, everything hangs off your income. So I'd highly recommend you have a chat to a planner to get some quotes on income protection. We can also plug you in with other financial planners who will give you those quotes. I think it is well, well worth it if you don't have it.

What, what would you say though? I mean, for a lot of our clients, they've been on the program for a while. They've built up a fantastic, you know, security blanket for themselves, a buffer. They've got a lot in redraw. You know, where does your head sit with that?

Really good question. If you are on your system, you will have redraw, you will have buffers, you have safety nets. That's part of the program. We want to give you those three months worth of expense loan rep as a buffer. However, you still need an income to come in because eventually that buffer gets chewed up as your expenses are going out and no incomes come in. So that's what I was talking about, delaying that waiting period. And so if you've got a redraw of $74,000, for example, then you don't need that income protection policy to be paid 30 days after your accident. You could probably wait a year and you're still going to be okay. You can use that regional for the first year and then after that year then the actual insurance starts paying into your home loan account 75% of your gross salary. So just delay that waiting period by a year. Your premium will probably, I mean BE well, maybe 20, 30, 40% cheaper because.

The long waiting period, it's that significant. That's pretty good.

Yeah, it's a huge insurance company knows that. They always think that there's a strong chance you might be back at work within the year so they don't have.

To pay at all. Yeah, so that's my, I've always thought with income protection, I didn't know if it was worth it because I, I always think of income protection is only being paid out for a amount of time. It's like, oh, I'm only going to be off work for three months kind of thing. And it's like most people that I know, you know, on the program, they've got that three months built up. But a lot of situations, these sort of things can, can, you know, carry on for a while. It might take you a year to get back to work, especially in a serious injury.

So yeah, protection, sorry to cut you off. Income protection is there for those times where you actually can't get back to work. Like for example, you got hit by a bus, but the bus wasn't going fast enough. Like you, you crippled, you're vegetable, you've still got all your medical costs, it's got your living expenses. So that's, that's really what it's there for is that those times where you suffer a stroke or could be cancer, but you're still alive and you still need to be supported.

Yeah. Okay, cool. That's an interesting one. It is, it is. It's really tough, especially with living expenses going up, justifying like the premiums on these sort of insurance policies. But again, it's a protection against something that, you know, a lot of us will potentially face in our lifetimes. And it's something that needs to be considered.

I mean, they're just the numbers. That's just so sad. That's the fact of it. So, yeah, it is that peace of mind. Obviously, the lower your debt is, the less insurance you need and so you can start to reduce that cover amount every year as your debt reduction continues. But income protection, I think is imperative, especially if you're a one income family. If you're the sole breadwinner for the family and you've got a wife or a husband at home with the kids, you definitely need to be protecting that number one asset to the household for sure.

Yeah, absolutely. And so is it just when you're looking at things like life insurance, obviously income protections connected to whatever your income is at that time with life insurance, is it purely just covering your. Whatever debt you owe or. And like, how do you kind of interpret how much life insurance you actually need?

Another stellar question, Jess, you are coming up with some five.

Oh, no, I'm asking for myself.

These are the big questions. They're so important to actually think about and there's no right or wrong answer. I'm just going to tell you what I personally do for myself. I cover my debt amount plus another 500 or so thousand, just so my partner doesn't have to go straight back into the workforce and she can actually sort of get to her own two feet and have a bit of time to grieve. But everyone's different, you know, I mean, some people say you should be doing like 10 times gross salary or 20 times your gross salary is what you should be insuring your life for. So it's whatever. It's basically how much of your working career do you think you've got left? What's your salary? Let's say you're 40 years of age. You go, okay, I'm going to work to 60. What's 20 times my income? Those are some maths there. Or you can say what's. Because I just look at asset protection, keyword asset. My house, I want to protect my house. And so that's how I look at it. Okay, what would it take to pay off my house or whatever, whatever debt I've Got. And then to give it a little bit of a buffer for basically helping my family get back on their feet. So there's no right or wrong answer, but just covering the debt is the absolute bare minimum.

Yeah, just. Yeah. And I think as well, you know, from, from what we've just said, is understanding that your life insurance coverage could change as your. As you go through different life stages and as your. Your situation change, you're paying, paying down debt, you won't need as much. You're getting closer to retirement age anyway. You won't need as much, like all of those sort of things. And each time you reduce your policy, I'm sure that reduces your premium.

Not necessarily. The saddest part about insurance is that the insurance companies jack up the premiums every year drastically the older you get. So your premium when you're 30 versus what it is when you're 40 versus what it is when you're 50 versus what it is when you're 60 is like, I'm talking two, three times the amount. The insurance company. These guys don't like paying out money. They're little, they're rats. And so they'll try to jack the premium so much in your latter years, which is when you really need the policy because they don't want to be paying out. They know that you've got a higher.

Chance of actually, because I've heard of level and stepped repayments before. Is that, Is that kind of what you're talking about?

Yeah. So if you take out an insurance policy in your 30s, you can elect to have a level premium. What does that mean? That means you're sort of fixing in the premium for the next 10, 20 or so years. That doesn't mean it doesn't go up by inflation, which it does. It just means that you're paying a higher premium now. But in, say, seven years, then that level premium will be cheaper than the step premium. Whereas a step premium means every single year it goes up. The older you get, the more expensive that premium is, and it just gets prohibitive. Like when you're 55 years of age and you're, oh, my, I really need the insurance now. When we're talking like thousands and thousands of dollars a year where you're like, oh, my God, we just don't have this as spare capital and they cancel the policy and then you've just paid all that insurance, insurance for that whole time for no benefit.

And then that's hard. That is hard.

So, yeah, it's. Everyone's different. Everyone's got different Appetite for risk. I'm not saying this is the right way or wrong way. I'm saying just please be conscious of it, look at it, speak to a financial advisor about it and just get some quotes, get some premiums. Everyone's got insurance, part of their super fund that's really bare minimum cover, like, called basic cover, which is better than. But I mean, you really need to have your own personal situation.

Can I just ask one more question? So, like you just said, insurance companies don't like paying out. And so, like, there's a genuine concern that if you have an event where you're expecting to get insurance, there's a fear that the insurance company isn't going to pay out. Do you see that very often?

Or is it every single payout they'll try and weasel out of it in some way, shape or form and they're just absolute slime bags.

Because doesn't that make it, like, I'd be less interested in insuring then if there's no guarantee that in the event it happens, I get a payout?

Yeah, I mean, like, when you die, you die. It's pretty. You can't waste a lot of that, really. The ones they try and weasel out of the most are total permanent disability, tpd. Because they'll say, oh, you put in a claim saying, no, I just had a car accident. I'm literally a cripple. I can't work anymore. But then you've got this policy which says you can do any occupation. No, Jess, I can strap a pencil to your nose with sticky tape and you can still use a keyboard. So you can do any occupation.

Oh, my God, that's crazy.

So TPD insurance is very. It's not cut and dry. No. Are you totally disabled? But can you do your own occupation or can you do any occupation out there? Whereas life insurance is pretty clean. And then obviously income protections. If you can't work, you can't work. But they'll try and get you back to work faster. And all these bits and pieces, like you said, if you've got a year waiting period, they're praying that they can basically prove that you can work within.

The year, get you back. Yes. Okay, fair enough. All right, well, look, I think we've covered off some really interesting stuff there, so thank you so much. I think it's worth everybody having the conversation with your partner, Think about what your situation is, what's going to be right for us, have a chat to a financial planner and put some protection in place.

What you just said then is unbelievably important having a chat to your partner. Your insurance isn't for you, it's for your partner. You're insuring your life, but it's what your partner's going to receive. So what I say to a lot of clients is speak to your partner and say, how much would you feel comfortable with if I was to pass away? What's that amount of money that you'd like? Oh, if I had $1 million, then I think I'd be feeling safe and secure. And so it's about your partner's peace of mind. That's who's going to receive the money. So ask them what they want to receive or what they would be enough for them to give that peace of mind in that traumatic situation. So it's. I know the insurance is on you and you're getting life insurance, but it's paying your partner. You're never going to receive a cent of it.

Yeah. And if you're fighting with your partner and all of a sudden they take out a $3 million life insurance policy against you, they start testing your food before you.

That pesto's got some rat sack in it. Something's going crazy.

Oh my God.

Yeah. But once again, like the insurance companies that weasel out of in any way. And so if they see that you've got literally just increase your life insurance from a million to $3 million and then within 60 days you've passed away. Oh, dude. They're doing the deepest dive into what was in.

Deepest dive. Yeah.

How do I, how do we get out of paying $2 million is their question. And so yeah, just be conscious that these guys are running a business. They're trying to make profit. Paying out insurance policies reduces their profit. And these companies are now at the stage where when I first started doing insurance was basically they're there to ensure people, whereas now they don't want to take on any risk. If you're not a clean skin, which means you don't have any pre existing conditions, then sometimes they'll load your premium because, oh, once upon a time you saw a chiropractor because you had a stiff neck. Oh, we'll give you a back exclusion or neck exclusion or load your premium to take into account. That's unbelievable how anti risk these insurance companies are.

Well, especially with the. What's happened over the last few years, they're so much more sensitive and overexposed anyway, so they're becoming even more kind of stringent, aren't they?

They just don't take on any risk. Which is their whole point of business.

So, like, that's. That's kind of your job. Just. Yeah. All right, awesome. Okay. Well, thank you so much for that, Scott. That was great. Looking forward to our next podcast.

Bonsoir, Sam.