Life can change in an instant

While on a family holiday, Paul Taylor, a healthy 45-year-old man, tragically drowned while swimming in the surf. His wife Sue, along with their 15-year-old daughter Sophie and 12-year-old son Zac, witnessed the devastating event from the beach.

Following the funeral, and while still in a state of deep grief, Sue had to confront the reality of the family’s financial situation. She discovered that the Taylors were part of the 95% of Australian families who did not have sufficient life insurance, a fact that she was previously unaware of. Despite receiving support from friends and relatives in the following days, the family had to confront the long-term consequences of being underinsured.

Not alone

The story of Sue, Sophie, and Zac is unfortunately not unique. Every year, more than 8,800 Australian men and women aged 25 to 50 – the prime parenting age – pass away. This means that one out of five families will go through the loss of a parent or have a parent incapacitated due to a severe injury or illness, resulting in a significant reduction in household income. However, these statistics do not fully capture the emotional toll and deeper impacts on the family caused by the loss of a parent.

Upon initial observation, the Taylor family seemed to be financially stable. A few years prior, Paul had received a promotion to an executive position, resulting in a high salary. This enabled them to move into a beautiful new home near the private school attended by their children, Sophie and Zac.

Sue worked part-time, mainly as a taxi service for the kids, and contributed to the annual family vacation fund. Although Paul and Sue enjoyed a wonderful lifestyle, it was backed by a substantial mortgage that consumed a considerable portion of Paul’s income. Unfortunately, his unexpected passing had significant long-term implications.

A quick look at the numbers

The late Paul Taylor had some financial resources at his disposal. He had managed to accumulate more than $300,000 in superannuation and had taken out $250,000 in life insurance through his super fund. However, as is often the case with many Australian families, Sue had limited earning capacity due to lack of qualifications, work experience, and time out of the workforce. The Taylors had a mortgage of over one million dollars, and Sue realised that even if she used all of Paul’s superannuation and life insurance to pay off the mortgage and started working full-time, she still wouldn’t be able to afford the mortgage repayments.

Sue faced the daunting realisation that continuing to pay for private school fees was unrealistic. She had to make a difficult decision and concluded that she would have to sell their home, relocate to a more affordable area, find full-time employment, and enrol her children in a public school. Despite the immense pressure, Sue sold their house quickly and for a significantly lower price than its true value, as her priority was to eliminate the mortgage.

The human consequences

Although the family experienced a significant decline in their living standards and the children missed out on various opportunities, it would be simplistic to say that this was the end of the story. Despite the challenges, Sue was able to secure a reasonably stable home for her family and ensured that the children could continue their education, albeit at a different school.

However, the emotional impact of losing a parent is the crucial aspect of this story.

Sophie was in her mid-high school years when her father passed away. Moving to a new school during a crucial phase in her education led her to suffer from clinical depression, which is a prevalent issue affecting almost 70% of children who have to change schools due to financial reasons. On the other hand, although Zac was not affected by depression, he felt the need to mature quickly and take on his father’s responsibilities, despite Sue’s efforts to provide him with a normal life.

The financial impact of Paul’s death also extended to his parents, who were age pensioners. They did what they could to assist Sue in providing some additional support for Sophie and Zac. Since Paul was an only child, his parents would not have the support that he had planned to provide as they required more care.

Why were they unprepared?

While life insurance cost is often cited as a primary reason for inadequate coverage, Paul’s failure to safeguard his family was the result of various factors.

Despite being aware of the importance of life insurance, Paul did not give it much thought due to his demanding career and the belief that he was healthy and would live a long life, despite accidents and suicide being common causes of death during the key parenting years.

What might have been?

Partnering up. Taking out a mortgage. Having children. Each of these events should have sparked a little voice in Paul and Sue’s heads saying: “take out life insurances”. And with each major change in their situation, that little voice should have piped up: “review your life insurances”.

Why? Well, the obvious answer is that this would have allowed Paul to leave the family with enough money to pay off the mortgage, cover school fees through to the end of high school and to provide a regular income to meet ongoing living costs.

While the financial benefits of life insurance are clear, the true value lies in the emotional and psychological well-being of the family left behind. If Paul had taken out life insurance, it would have greatly reduced the risk of Sophie developing depression, alleviated Zac’s sense of responsibility to step into his father’s role, and relieved Sue of a significant burden. It would have also helped maintain Sue and the children’s friendships and provided Paul’s parents with the reassurance that their family would be taken care of.

Making it happen

Obtaining life insurance does require an investment of time and money. And yes, a good policy will cost more than a bad one. It can be complicated, and it requires some careful thinking about a topic that many would rather avoid. All up, it’s something most people give little thought to.

While life insurance may come at a cost, it is undeniably crucial, and striking the right balance between cost and benefits requires a careful approach. That’s why it’s important to seek the advice of a licensed financial adviser who can help you assess your individual situation, present you with viable options, and clarify the potential consequences of your decisions.

While money cannot fully heal the pain of losing a partner or parent, it can certainly alleviate the financial burden that comes with death or disability. Unfortunately, death and disability can occur suddenly and unexpectedly, and if your family is among the 95% of Australian households that are underinsured, it is important to take action now to rectify this.