How much personal insurance is enough?

When it comes to lump sum personal insurance, we try to plan and prepare as much as we can for an event most of us would rather not think about. Personal cover claims, particularly under trauma insurance, can vary from a minor to a worst case scenario in terms of prognosis. Personal insurance cover includes a number of products, including life insurance, TPD insurance, income protection insurance and trauma insurance.

Determining a starting level of cover for personal cover should be based on the worst case scenario to ensure an adequate level of financial reserves. But have you considered all costs when determining a worst case scenario?

Typically when answering this question, you should consider current and future financial needs such as clearing debts, replacing income and covering expenses. Calculators can be used to break these down even further, considering specifics around:

• salary replacement and inflation for the years required
• funeral costs and related expenses
• mortgage and other debt
• children's education
• cost of childcare and housekeeping expenses.

But what about the additional and often hidden costs of sickness and injury, like paraplegia or quadriplegia (physical paralysis from the neck or waist down usually due to spinal cord damage), strokes and other degenerative conditions? Often there are additional medical costs for a specific injury or condition that you may not have even considered.

Additional costs of sickness and injury for personal insurance

When considering the extra costs associated with a serious claim, it is important for you to consider:

• how much you would need to cover the costs of quality treatment, ongoing care and rehabilitation
• if your partner or spouse needs to become your primary carer and what costs or lost income is involved
• treatment costs can be high particularly if travel and hospital visits overseas to access the latest or best treatment is required
• how much would you need to buy supportive equipment and make any modifications to your house, transport and to make life easier.

Some of these may be one-off costs and others may be ongoing costs.

Personal insurance costs for specific scenarios

When it comes to sickness and injury, the extra costs you may be faced with depends on the type of injury or illness you have, which can vary significantly. Below are two examples of costs related to cancer and stroke.

These examples look at factors such as ongoing medical costs, the impact of mobility and the changing nature of various inflictions in the long term.

1. Stroke
The specific abilities lost or affected by stroke depend on the extent of brain damage and, most importantly, where in the brain the stroke occurred. But common side effects include:

• weakness or lack of movement (paralysis) in legs and/or arms
• shoulder pain
• changes to way things are seen or felt (perceptual problems)
• problems thinking or remembering (cognitive problems)
• trouble speaking, reading or writing
• feeling depressed.

A study entitled, 'Cost of stroke in Australia from a societal perspective' (by Dewey et al.2001) found that the average cost per case in the first year of a first-ever stroke was $18,956, and over a lifetime can equate to $44,428. But in the most severe cases, where motor skills and mobility is severely impacted, costs can escalate and equate to hundreds of thousands of dollars.

2. Cancer
One of the biggest financial impacts on individuals and family costs when it comes to cancer is the loss of income.

And this will also vary depending on diagnosis, treatment and type of cancer.

The Cancer Council of Australia estimates the average lifetime financial cost of cancer on a household in NSW is around 1.7 years of annual household income - which equates to approximately $106,250.

Access Economics (Cost of Cancer in NSW, April 2007) reported that on average, households can expect to lose $47,200 in costs when a household member is diagnosed with cancer. This includes nearly $9,000 in health care and other out-of-pocket costs. These costs include:

• treatment,
• loss of income,
• respite/palliative care services, alternative and complementary therapies,
• community programs,
• aids, equipment, modifications, and
• travel and accommodation.

Due to the types of cancers being treated, more is generally spent treating children ($94,500 per person) than people of working age or older persons ($29,900 and $35,300 per person, respectively). The most expensive cancers to treat are leukemia ($76,000 per person) and brain cancer ($60,800).

Determining personal insurance levels

It is important to look at both factors when considering the sum insured as a starting point before considering affordability. Factors include current and future financial needs plus the additional cost of sickness and injury in order to come up with the minimum level of cover needed.

If you would like help determining how much personal insurance cover you need, speak to an xLife adviser. We can help ensure you are insured for the correct amount, and offer free quotes.

Source: CommInsure June 2010

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July 2008