Jane and Terry are aged 40. Terry is a highly paid executive earning $170,000 per year. Jane hasn’t worked since having their two children aged 11 and 9 but used to work as a kindergarten teacher. They live close to the city in a house valued at $1.5M with a mortgage of $600,000. Both children attend private schools. On Terry’s income they are able to comfortably afford living expenses, school fees and the mortgage and have accumulated $50,000 in savings.

What if Jane and Terry don’t have insurance?

Terry maintains a regular fitness routine but has an unexpected heart attack while jogging one morning. Because he is not found by passer-bys until too late Terry dies on the way to hospital.

Although still in mourning Jane has to take stock of her finances. She makes plans to return to work but on her salary of $50,000 she will be unable to meet the mortgage payments and private school fees. Jane decides she has to sell the family home, purchase a house in the outer suburbs and enrol the children in the local public school.

Just when Jane and the children need the support of their friends and neighbours the most, they have to give up the family home, move far away from their support networks and start a substantially different life than before.


What insurances could Jane and Terry have taken out?


1. Income Protection

Terry could have taken out income protection for a monthly benefit of $10,625 (i.e. to cover 70% of his income). Due to the savings they had accumulated Terry could have taken out a 90 day waiting period which would have reduced his premium.

Had Terry survived his heart attack but been unable to work again for some time he would have received monthly payments under his policy to help meet the family’s expenses.


2. Trauma Insurance

Jane and Terry could have taken out trauma insurance of say $200,000 to be paid in the event of serious illness.

If Terry had survived his heart attack this amount could have helped fund medical expenses, discretionary time off work and even a change in lifestyle.


3. Life Insurance

Jane and Terry could have taken out life insurance for each of them. For Terry they could have taken out enough to cover the mortgage of $600,000, $200,000 for private school fees and another $1.2M as a lump sum which Jane could draw down on to supplement her own earnings (based roughly on ten times $120,000) i.e. a total of $2.0M.

For Jane they may have taken out enough to cover the mortgage of $600,000 plus an amount of $500,000 lump sum which Terry could draw down on to cover the housekeeping and childcare costs so that he did not have to reduce hours or change jobs (amount based roughly on ten times $50,000) ie a total of $1.1M.

Similar amounts of TPD insurance could have been taken out in the event of total and permanent disablement.

What if Jane and Terry had these insurances?

Jane could have used some of the death payment of $2M to pay off the $600,000 mortgage on the family home. This would mean that Jane and her children would not have the disruption of moving while they were dealing with their grief. It would also mean that the children could stay at their current private school where they had their support network of friends. A private school education was something that both Jane and Terry had wanted for their children and this could still be achieved. Jane would not be forced to return to work full time and would be able to be at home to provide support for her children. Terry’s family would have been able to continue to maintain the lifestyle they had before his death by drawing down on the remaining lump sum of $1.2M until the children were adults.

Please note that the above case study is provided for illustrative purposes only. This is general advice only and does not take into account your particular circumstances, such as your objectives, financial situation and needs. If you would like advice on your personal situation please go to Get Advice.