If you’re close to retirement, you’re probably planning on how much you’ll need for the lifestyle you’re hoping to have. However, there’s one issue that you may not have thought about.

If you have children and/or grand children, what would happen if one of them became ill and unable to earn their usual income? Would the financial burden of helping to support your children and their families then rest on you?

It’s important that you consider this issue as it could make a real difference to your retirement savings and lifestyle.

Case study – how adequate insurance would have protected Max and Martha’s retirement savings

Max and Martha decided to retire about five years ago. In preparation for retirement, they discussed retirement issues with their friends and browsed various financial websites for tips about how they could best set themselves up for retirement. All seemed to go well, until the market downturn last year. Max and Martha took action by living frugally and reducing their discretionary expenditure.

Recently, they decided to see a financial planner because an unexpected problem had arisen – their son, Trevor, was involved in a motor vehicle accident and was likely to be away from work for at least six months.

Trevor is married with two young children. His annual salary of $80,000 was used to fund most of his family’s living expenses. His wife Tina works part-time and earns about $20,000 per year. Trevor has a small amount of life and total and permanent disability (TPD) insurance in his super fund. He does not have much sick leave left. He cannot make a claim under his TPD insurance as he is likely to recover from his injuries and resume work later on. He has little other option than to seek help from his parents. Martha and Max are in a quandary. Should they withdraw money from their superannuation income stream to help Trevor and his family pay the mortgage, household bills, medical expenses etc, which will deplete their investments even faster?

What could Trevor have done to alleviate this happening? One option would have been to take out a salary continuance insurance policy.

Salary continuance insurance – also referred to as income protection insurance – provides a replacement income in the event that the insured (Trevor, in this case) is temporarily unable to work because of illness or injury.

Premiums will be affected by such factors as the waiting period and the benefit payment period chosen; the shorter the waiting period, the higher the premium and the longer the benefit payment period, the higher the premium.

The waiting period is the period of time before your insurer commences your payments. Waiting periods vary, but generally the shortest is 30 days. The maximum percentage of salary that insurers will cover is 75%.

To find out what sort of insurance would help protect you and your family, talk to your Bridges financial planner.

To arrange a complimentary, obligation-free initial consultation with a Bridges financial planner call us on 1800 645 303 to locate a branch near you or visit www.bridges.com.au

Bridges. ASX Participant. AFSL No 240837. This is general advice only and does not take into account your objectives, financial situation and needs. Before acting on this advice, you should consult a financial planner.