Protecting your assets with life insurance

What are your assets? When you think of the term ‘assets’ you most likely visualise possessions such as your home and car, or perhaps you think of jewellery, savings or investments. As valuable as these are, assets can also include intangible objects that may not immediately be considered in dollar terms. 

This following information is aimed to help you determine the full scope of your assets, their worth, and how you can best protect them with life insurance. 

Is life insurance one of your most important assets?

Once you broaden the definition of asset, the priority previously given to tangible assets may change. An easy way to determine the importance of your assets is to classify them into three categories. 

1. Relational Assets
These are assets based on the relationships you have with the people closest to you and are characterized by a high degree of emotional and physical dependence or interdependence, such as:

• your spouse and their contribution as a breadwinner or home manager
• your children and their future potential
• yourself and your contribution as a breadwinner or home manager
• other dependants, such as elderly parents, and
• children from a previous marriage.

2. Personal Assets
These are assets which have a quantifiable dollar value and which you identify as part of your personality, such as:

• your home
• your motor vehicle, and
• your household possessions and valuables.

3. Financial Assets
These are items which hold financial value but which generally have no personal or emotional value, such as:

• superannuation
• investment property, and
• shares, bonds and bank accounts.

What value do you place on these assets?

One of the great ironies of financial planning and decision making is that we spend most of our time thinking, planning and worrying about financial and personal assets, and our relational assets rarely come into consideration.

What about the ‘volatility’ of your assets?

A characteristic of all asset types is volatility. The most common concerns regarding asset volatility are in relation to financial assets. For example, a share portfolio is generally considered to be relatively volatile due to the ongoing possibility of gains and losses. These may amount to changes in value of 10, 20 or even 30% in a year.

However, the volatility of relational assets far exceeds this. 100% of a breadwinner or home manager’s dollar value can be totally lost at any time, through major illness or injury.

What does this mean for you?

The high value and extreme potential for volatility of your relational assets makes them worthy of careful consideration. While the protection of these assets may not be something that you have considered in the past, a few minutes spent calculating their worth may be the most financially powerful thing you ever do! The following list provides a good starting point.

Protecting relational assets

• Breadwinner(s) – project income over the remainder of your working life, with some allowance for inflation.
• Home manager – calculate a dollar value for the duties undertaken by the home manager which would have to be paid for if you were no longer capable of performing these duties. This includes childcare, cleaning, transportation, cooking, home maintenance, accounting and laundry.
• Children’s potential – for each child, calculate the funds required to allow completion of education and any additional amounts required for tertiary study and realisation of their full potential.
• Dependents – how much will it cost to provide home and medical assistance for dependent relatives who may require independent care so that a surviving spouse is not left solely responsible?
• Bequests – do you have any relatives, charities or children from previous marriages who you want to provide for? If so, how much will this amount to?

Protecting personal assets 

• Home – how much debt remains on your home? Would you want this to be paid out?
• Car and other possessions – do you have personal loans and credit debts that would need to be paid?
• Future plans – are there any planned future purchases for major items such as a child’s wedding that you want to provide for?

Protecting financial assets

You may have savings and investment goals that will be interrupted if you were to suffer from serious injury, illness or premature death. These may include large purchases such as a holiday home, boat or overseas vacation. Do you want to have to liquidate existing assets to provide an income stream, or even allow funds for these goals to be immediately realized by a surviving spouse or dependents?

Creating your asset protection program

The value of your relational, personal and financial assets might be enormous, so what types of insurance can you put in place to create an ‘asset protection’ program? There are four main categories of insurance which are designed to work together to provide security for you and your loved ones.

Life Insurance

A life insurance benefit provides a cash lump sum in the event of death. This can be paid directly to a beneficiary for immediate use in whichever way they see fit – there are no restrictions on what the money can be used for. Some life insurance policies also provide for an early payment if a terminal illness is diagnosed. Premiums may also vary from life insurance company to life incurancfe company, so it is well worth while doing some research and comparing life insurance quotes.

Total and Permanent Disability Insurance

Total and Permanent Disability Insurance provides a lump sum if you suffer a major illness or injury which leaves you permanently incapacitated. The extent to which you must be incapacitated varies between insurance companies, but generally relates to a permanent inability to work. There are often also provisions to allow payment in the event of particularly serious injuries such as loss of sight.

Income Protection Insurance

There are a vast number of illnesses and injuries which have varying terms of impact. These often fall outside the scope of total and permanent disability and critical illness insurance. Income protection insurance is designed to protect you from a loss of income due to such conditions by paying a replacement monthly income of up to 75% of gross income.

Critical Illness Insurance

Critical illness insurance provides a cash lump sum upon diagnosis of certain medical conditions. While these may not be conditions that cause permanent disability or an inability to work, they generally require significant lifestyle changes, can involve exorbitant medical fees and include conditions such as heart attack, stroke and cancer.

Contact xLife for free life insurance quotes today.

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September 2009