A lifetime of changing needs

If you speak to any financial planner, they will all agree that personal insurance is a cornerstone of financial security. What is not as widely pushed is that reviewing your insurance cover is just as important as reviewing your risk profile for your investments and superannuation. This is because, as your tolerance to volatility in the market changes over your life cycle, so do your insurance needs.

Now, as a disclaimer, I will put out there that I live in the camp of they are ALL important, and has been fully insured since the ripe old age of 21. However, not everyone is as risk conscious as myself when agreeing to cover, and not all budgets are able to stretch to cover every single base, so although I am not advocating turfing your other cover, I am saying that as a BARE minimum, you should be having a conversation with your financial planner around the following.

The glory years

You're young, and just starting out. You have finished the hard slog of education, and finally have some money to burn in your first job. Now, if you are 22, and your starting salary is $30,000, and there is an expectation that your final salary will be approximately $69,000 when you retire at the age of 65, then that is just over $2,000,000 of income. Wow! And you thought that insuring your car was important.

The responsible years

You are no longer quite so young, and your life is changing rapidly. You have a partner, debt, and perhaps a family. We need to ensure that your family is protected, and your responsibilities met, if you are no longer around to help them, or if you are still around, but incapable of helping them.

So, here are some brain teasers for you. You know that last blood test you went for? Well, the Doctor has made that dreaded personal call and you have cancer. How is that going to impact on your family? Will your partner need to take time off work to help you while you go through treatment? What does your private health cover you for? And how do you tell the kids? After work, or while you are planning a family recovery trip to the Coast? Trauma insurance can step in and help here, after all, we all know that as we get older, things just don't work as well as they they used to, and the chance of experiencing an adverse medical condition keeps on going up.

What about if you could no longer work? You've had an accident, and you are unable to continue in your current field. Brain injuries, bad back, shaky hands, arthritis, car accident, falling out of a window, you choose the scenario, because there are plenty out there. Yes, your income protection will kick in, but what about the additional expenses such as your partner's time off work, your rehabilitation, the extra medical equipment? This is where Total and Permanent Disablement (TPD) cover is important. If you could no longer work, wouldn't it be nice to know that your home loan was paid off?

And last but not least, the big kahuna, Life cover. The importance of this one is much easier to explain, but much harder to talk about. You are dead. This is no longer about you. This is about your family. What have you done to help them recover from their loss, emotionally as well as financially?

The cheese and wine years

The children have grown up, and you have more disposable income than ever. You can take the time to sit back, and focus on just the two of you, and what your plans are going forward. Life cover is still important, and so is income protection, because your household, even in its reduced number, is dependent on two incomes to make it's dreams come true. Trauma and TPD cover may still be important, depending on your individual circumstances, but with retirement just over the horizon, and your debt on the downward trend, it may be time to rationalise the amount of cover that you hold.

Find Erin* at Achieveit Financial Planning, or call for an appointment on 07 4638 5011.

*Authorised Representative of Securitor Financial Group Ltd ABN 48 009 189 495 AFSL 240687

This is general information only and does not consider your personal circumstances. You should not act on any recommendation without obtaining professional advice specific to your circumstances. We recommend you speak to a financial adviser before acting on any of the information you read on this website.

Negotiating between the future you, and the current you (using the past you)

Last year, I had the opportunity to listen to Dr. Jason Mitchell from Harvard University while at the AFA Conference on the Gold Coast. For those not in the know, he is the Principal Investigator at the Harvard Cognitive and Affective Neuroscience Lab, and therefore, is much more interesting than I can ever hope to be (no...seriously, this guy has the most amazing job).

I am a firm believer that there is always room for improvement, whether personally or professionally, and two things that Dr. Mitchell spoke about really resonated with me. I would like to share this with you, because it will help us understand how our brains work, and therefore be able to assist ourselves, and our client's to overcome behaviour that may not be in our best interests.

The first concept is that your brain doesn't "see" your future self as an extension of you. It sees the future you as a third person, which is why many of us struggle to feel urgency about preparing for the future, and/or, controlling your instant gratification impulse. There is a disconnect between doing something positive, such as saving for retirement, and the end result, because according to your brain, that end result is happening to someone else. I know that this is probably an "Ah ha!" moment to many financial planners, especially when it comes to the push back with insurance. I know that I have had clients who acknowledge the benefits of personal insurance cover, but in the same breath say "just not for me". When quizzed further, these clients invariably say that it's not for them because they just don't see themselves ever needing it - it happens to other people.

The second interesting thing that Dr Mitchell brought up is that we, as a species, like to have consistent behaviour. We think of our past, and future selves as a third person, but we "like to keep consistent what we think, say and do, and will change to ensure this is so" (Mitchell, 2017). When you start to reflect, you will probably find dozens of examples where you have changed what you were going to say, or do, in order to display behaviour consistent with your audience's expectations. This is a problem when you are trying to break bad habits. An easy example is a spouse who hesitates over a purchase, knowing that things are tight, but might overspend on an item because the other spouse would be "disappointed" if they didn't.

So, how to we go about changing this? The first point is the way the brain is wired. So, in order to work with biology, we must bring our future self to our present self. In my opinion, the ability to do this is what separates a really good Financial Planner from the rest of the pack. Turn your empathy towards yourself, and imagine if your future self was your right now? What would you do, right now, if you had been diagnosed with cancer? What would you do, right now, if you had to retire? What would you do, right now, if that school fee bill turned up in the mail? Bringing the future problem to the present moment will hopefully create the feeling of urgency (and light up the right areas of the brain) so that changes can be made.

Now that we acknowledge that the change needs to be made, we need to have a solution to the problem of overcoming our need for consistent behaviour. The solution seems to be all about incremental change. Rather than trying to make a big change, you make seemingly small, and inconsequential changes. Then you build on that change. For example, rather than buying that coffee on your morning commute, you put the money in a tin. Such a small thing, but if a coffee is $5, then at the end of the week you have $25, by the end of the month, you are on a roll, have saved an extra 20 minutes per day, and have an extra $100 put aside. From that 20 minute time saving, you could possibly make your lunch in the morning. This might save you a further $10 per day. So now, you are saving $300 per month, which is $3,600 a year. All of this from such a little change.

Of course, in order for this to be of any value, you need to actually do it. Dr. Mitchell suggested changing your mindset by using your brain's idiosyncrasies to benefit your future self. You can cut the tie by acknowledging that your "third person" past self is a different person to your present self, and therefore your present self can have different behaviours than this past self stranger.

Wordy, I know, but so very, very interesting. If you ever get a chance to see Dr. Mitchell speak, or come across his work, then jump at it. It really is an experience.

Find Erin* at Achieveit Financial Planning, or call for an appointment on 07 4638 5011.

*Authorised Representative of Securitor Financial Group Ltd ABN 48 009 189 495 AFSL 240687

This is general information only and does not consider your personal circumstances. You should not act on any recommendation without obtaining professional advice specific to your circumstances. We recommend you speak to a financial adviser before acting on any of the information you read on this website.

Mitchell, J. (2017) 'Building consumer trust through higher professional standards' [PowerPoint Presentation]. (Accessed 12 October 2017).