The cost of inaction
We recently had the opportunity to speak with ten self employed tradies about the importance of insurance when you are self employed.
We spoke about the different types of insurance & how each cover could support them, should they become ill, injured or pass.
There were several questions throughout the presentation.
However, there was one particular question that stood out to me:
“Insurance is a waste of money, they never pay out.”
I asked this Bruce, what his experience was and to share it with the group to see if I could provide further information.
Bruce use to be a truck driver & broke his leg. He was unable to return to the truck for 4 weeks. However, he had an income protection policy that had a 6 week waiting period. Meaning, you had to be off work for 6 weeks before you were able to make a claim on your policy.
I explained this to him and this was the first time someone had spent time to educate him and provide the information in a way that he could relate.
Frank, one of the other self employed tradies (we had recently completed his insurance advice for) joined the conversation to say “I have an option for accident cover from day 1 & a 30 day waiting period on my income protection cover. It costs more, but I know my savings & business can carry me through 30 days off the tools.”
Bruce said “I’ll never get insurance again, it’s a rip off.”
I followed up by sending all the information through & offered a free consultation to see how we could support.
As I say with all of my clients, it is your choice around insurance, we can only provide you with all the information so you can make an informed decision.
However, you need to consider how you would like to leave your family in the event of injury, illness or death. Would you like to leave your family, worse off, the same, or better off?
Unfortunately, Bruce did not take up the free offer.
A few weeks later, I was informed he was out on the worksite and had a heart attack.
He was rushed to hospital & is now in a stable condition, but 8 weeks later, he was still in hospital with a long road to recovery in front of him.
As he is self employed, his income has stopped.
His clients are going else where to get their jobs done and the value of his business is diminishing.
He still has a mortgage to pay & a family to support.
The cost of inaction for Bruce & his family is significant.
Bruce is 50 years of age, has a wife & two boys, is self employed earning $100,000 p.a.
To establish a comprehensive insurance plan to cover his family and ensure they were financially secure, Bruce could have paid premiums of $5,770.43 (of which some of the premium is tax deductible).
Instead, the inaction from Bruce has cost him & his family being paid out $200,000 as a lump sum + $6,250 per month for each month he is off work.
This would have allowed Bruce’s family to focus on his health & recovery & also provide options to hire someone else to take over his clients/business for the short term.
TOTAL INSURANCE PAYOUT OVER THE FIRST 8 WEEKS = $212,500.00
TOTAL INSURANCE PREMIUMS FOR THE YEAR = $5,770.43
COST OF INACTION = $206,729.57
This is only the financial cost of inaction for Bruce & his family. The other costs include, the family having peace of mind, security, freedom & choice.
As opposed to setting up a GOFUNDME page, begging for money, pulling the kids out of private schools, and putting the house on the market.
In addition, the mortality rate of those that have suffered a heart attack increases significantly, and Bruce will not be able to get life insurance moving forward.
As a financial planner do I feel guilty at all?
Absolutely!
I am continuing to question what I did & could I have done more.
But unfortunately because of people’s past experiences & beliefs, sometimes it is difficult to change their minds in a group setting and it takes something like this to happen to one of their loved ones to understand the value of insurance & advice.