Often, we speak with clients who assumed they have an adequate level of cover in their Super policy, only to be unpleasantly surprised. Today, Financial Adviser Michael Finn will be taking you through a couple of examples to demonstrate why checking your cover with a Professional is so vital.

“I met a new client recently who was in quite a state of distress. Maryanne is 38 and a stay-at-home mum with three children all under the age of 10. She explained that her husband, Simon, had been killed in a car accident.

Simon had done the right thing by his wife and kids; he had taken out life insurance through his superannuation. Unfortunately, however, Simon had not sought professional advice. He had estimated how much cover he might need with the result that the insurance payout wasn’t nearly adequate. Of course, Maryanne received Simon’s superannuation as well, but as he was only 40, the accumulated value was not substantial.

One of our clients referred Maryanne to me for advice about managing her affairs. She was actively looking for work but in the meantime was forced to live off the proceeds of Simon’s insurance and super – which included repaying her mortgage.

Sadly, Maryanne’s story is familiar. According to Rice Warner, more than 70% of Australians hold life insurance policies through their superannuation funds. Despite this, under-insurance is a huge problem in Australia.

Perhaps it’s because many people don’t seek professional advice before taking out cover, thinking whatever their fund offers will be appropriate.

Of course, some insurance is better than no insurance, and insurance in super is easy and convenient to set up and pay for. But it comes with a couple of points to be aware of and this is where professional advice is invaluable.

Firstly, a portion of your super contributions are used to pay the insurance premium. Unless you’ve done the sums, you may not realise that you’re not contributing as much to your retirement savings as you believe.

My strongest advice is to regularly review your financial affairs; your will, your insurance, your mortgage, and to seek advice from a professional who understands your personal circumstances.

I often have this conversation with my clients; after we do the maths, many are surprised by the cover they actually need. Even a partner who doesn’t earn an income should be covered, particularly where dependent children are involved.

Naturally, the more cover you have, the higher the premium, but I’m pretty sure Maryanne would have preferred a higher payout in lieu of monthly restaurant dinners.

In contrast to Maryanne, I received a call from Mark, a client whose wife, Suzy, 43, had recently died from a brain aneurysm. Some years back I’d arranged a full suite of insurance cover for both Suzy and Mark, in and outside their super.

Mark claimed on Suzy’s life insurance. He paid off the mortgage, credit card and car loan, and can afford a part-time nanny to help with their two children. Losing Suzy devastated the family but the loss of her income hasn’t impacted their finances.

The contrast between Mark’s situation and Maryanne’s is profound. But the good news is Maryanne has found a job and I helped her to create a realistic budget and restructure her mortgage. It will take time, but things are looking up”.

To speak with Michael, or another of our licensed, fully-qualified financial advisers who has your best interests at heart, contact Superannuation Advice Australia.