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How much is too much insurance?

In recent years, the number of financial planners practising has reduced from 28,000 to just under 16,000. Many of those who left the industry were risk specialists, modern day life insurance agents. It is estimated that the number of clients left unadvised, or orphaned, by this exodus of financial advisers is approaching 1 million.

As independent financial planners, we are often approached by these previously advised clients, to review where things are at. On balance, we see more opportunities than not to reduce or cancel costly insurance policies, saving clients thousands of dollars in wasted premiums and commissions every year.


Things change

Life is full of uncertainties and it is important to be prepared for unforeseen circumstances. Insurance plays an important role here by providing protection against a risk event.  It does this by transferring the financial consequence of an adverse event away from the individual and onto the insurance company.

But even the best advice goes stale over time. As we age and experience life events, risks change, typically reducing over time.  Children grow up and leave home, mortgages are extinguished and as we draw closer to retirement we have less future income to protect.

While this is happening, the costs of insurance are skyrocketing. As we age, the risk event we are insuring against, for example death or disability becomes statistically more likely. In reflection of the increased risk it is taking, the insurance company will increase the premium, or reduce the cover benefits, or it will do both.


Uneconomic policies

As independent financial advisers, we do not accept product commissions structured through insurance policies. That means we are not rewarded in any way for how much insurance you hold.  Free of that conflict, we can objectively assess your insurance cover and the risks to your circumstances.

The fact is, as we approach retirement, most life insurance policies become uneconomic and inefficient.  The risk of your premature death becomes usurped by the risk that you will live too long and run out of money in retirement.

It is much wiser to spend a dollar saving for retirement than on insurance you don’t need anymore.  And if we advise that you should keep your policies, then we can turn off the commissions to your previous adviser and you can spend the savings on your retirement instead of theirs.

In the last few years of your career, every dollar counts. Many of us retire earlier than we plan to for reasons outside of our control: our personal health wanes, we are required to care for a loved one, or we just get the sack.

At When Financial Solutions we can show you how to make most of your financial circumstances, no matter where you find yourself.  It’s not a matter of ‘if but ‘when’`.


This article is general and does not consider your personal circumstances so it may not be appropriate for you.  If you would like advice specific to you, please let us know.

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