When thinking about financial autonomy we are typically talking about medium to long term goals, and then developing strategies to get to those goals. The transition then is a planned one.
What if your transition was thrust upon you?
I met someone recently who faced this challenge, and with her permission, I thought it was worth sharing with you a little of her story and the learnings that we can all take. Financial autonomy is about standing on your own two feet and not being reliant on others. Having choice. Part of that should be having the capacity to withstand adversity. Having the financial resilience to not lose your house or be forced to ask family for hand-outs.
Lets take a look at Jenny’s story, I think there are some great lessons we could all benefit from.
I met Jenny at a social function a few weeks back. Through the course of our conversation I mentioned that I had made a podcast called “Financial Autonomy” and told her a little bit about what that was all about. She said, “That sounds exactly like the help that I could use,” and so started to tell me a little bit of her story. I had never come across something like it before and thought it would be a fantastic thing to share to my listeners and those in the community. So I have subsequently had a phone call with Jenny and got a little bit more detail and that’s what we will be sharing today.
So I guess Jenny’s story started when her and her husband were in the process of separating and they were selling their house. The day that the sale went unconditional Tim, her ex husband, was diagnosed with pancreatic cancer. It happened really quickly, he was just feeling unwell and within a few weeks he had turned yellow.
With this diagnoses, pretty soon after he went in to have some surgery. The surgery wasn’t particularly successful. The surgeons couldn’t get to where they needed to, and so the advice was that he had 6-12 months to live. 12 months if he goes on chemo, but going through chemo is pretty unpleasant, so there is a quality of life consideration.
But he came back two weeks after the surgery for a checkup, and they found that the cancer had actually shrunk. The surgeons couldn’t really understand why, but I guess you just take it if you can get it.
So that was some good news. Now in the process, Jenny and the kids decided to move back in with Tim to help care for him. He migrated from England and he didn’t have any family here so that was obviously a fantastic thing that she was able to do for him.
So Jenny moved back in with Tim into a rental property, the house has been sold, and they each got their half of the money. Now that was in some ways fortunate because Tim had no insurance.
Ironically Jenny did have insurance, and this had been a cause of a bit of tension before they were separated. I guess Tim, probably like a lot of males, assumed it would never happen to him, and didn’t want to spend the money on having insurance. Also Jenny was telling me it was a bit of a factor that he was self employed so things like Income Protection weren’t easy because the insurer required financials, and so it wasn’t an easy straight forward solution as if say he was a regular employee.
Although he didn’t have any insurance, Tim at least had his equity from the house that had been sold. This was very fortunate, because if he didn’t have that money to support himself, all he would have had would have been Centerlink and that would have been a pretty grim outcome, resulting in most likely sharing a house with a stranger.
Could you imagine going through chemo in that kind of scenario, just horrible.
So any way, he was very lucky to have Jenny there to move back in with him to support him and they battled away. They went through the chemo and all the things you have to do.
Fantastically, now about 6-12 months since treatment (I’m not sure of exactly how long) he seems to have made a recovery. He needs to go back in for some chemo for about 5 weeks coming up. Generally the prognosis on pancreatic cancer isn’t good, but in Tim’s case it looks like perhaps he has beaten it and the signs are pretty positive.
Another consequence of going through this together is that Jenny and Tim have gotten back together as a couple, which is lovely too, especially for their kids. It’s funny how sometimes the dark times can produce some good things as well.
But something that Jenny was telling me that is something that really stresses the both of them out is that, Jenny has been a property owner since her early twenties, and Tim similar. And here they are mid to late 40s and they don’t own a house.
Usually the thing that is keeping people out of the property market is that they can’t save the deposit, but that’s not the case here. Tim didn’t go through all the money he got back from the sale of their previous home and of course Jenny has her share of it as well. So their issue is not the deposit, it is demonstrating that they can service a mortgage.
Hopefully, Tim will get back to work after this next round of chemo. Probably not doing the same type of physical work that he was doing before, but as soon as he is well enough he will get back to work. The kids are at school now, so Jenny could get back to work as well. So the challenge that they now face is that they are shut out of the property market as of now. They have some money for a deposit but they can’t secure a loan. So she is paying rent every month and feeling pretty negative about it.
Hopefully we can work with them in the future with regards to a financial autonomy strategy, to help resolve that challenge. But it’s just interesting that you would have never foreseen that (being shut out of the housing market) as a likely outcome of a serious illness. But that’s just how these things can sometimes unfold.
So that’s Jenny and Tim’s story, and like I said I thought it was just such a unique story. Certainly something that I had never come across before. And so I thought that it might be of interests to others and give the opportunity for learning.
So what can we all take from their experience?
I guess the first thing is that, insurance is important. As a financial planner, I arrange insurance for people but I must say I am always mindful of not wanting to come across as the pushy insurance salesman, so I probably don’t push the insurance hard enough. If it hadn’t been for this particular story coming up, I certainly didn’t have it on my radar to do a podcast that had any mention of insurance. But when you hear a story like this it really makes you stop and think how different would it have been if Tim had some trauma insurance? Which is actually what Jenny took out. It could have just transformed their circumstance.
We’ll go through shortly some of the main insurance options because they tend not to be widely known. But probably the starting point, as a male because I think its more of a male thing, is to have an awareness that you are not bullet proof, and things happen. And be aware that when things do happen, it’s not just you that suffers but often it can be your whole family.
I was talking to someone who has a family member with MS. She gets some Centerlink benefits but the only way that she is able to make ends meet is that her parents help her out. She’s in her 50’s and I gather her parents must be retired so it must be a financial hit to them, and I would assume that as a 50 year old, she doesn’t like having to ask her parents for money. But this is the kind of circumstance that we can find ourselves in. While it is amazing that here in Australia we have Centerlink type support, its often just not enough.
I guess when you are thinking about insurance and not wanting to pay for it, just think a bit more broadly and that it’s not just about you.
So what are your personal insurance options? There are four main options:
Life insurance, which is pretty basic, just pays a lump sum if you die. Often attached to that is one called Total and Permanent Disability (TPD), in order to qualify for this you need to be totally and permanently disabled. Fortunately this doesn’t occur too often, but the most common scenario for payout here is a stroke. You will often find through your superannuation that you will have some Life and TPD insurance cover. You need to give some thought to whether it’s the right amount of cover.
The next one is, Income Protection (salary continuance.) This is replacing your income if you are unable to work due to illness or injury (not unemployment insurance.) The good thing about Income protection insurance if you have it outside of super, is that the premiums are tax deductible, so that helps.
It’s also very customisable. There is always a waiting period, so this is the amount of time you have to look after yourself, before you start getting a benefit. You might have a bit of sick leave or annual leave. Usually you can get by for a little while. The default waiting period will be a month typically, though if it’s held in a super fund the default could be 90 days waiting period.
During this period you need to look after yourself, and then if you are still unable to work after the waiting period has expired, you will start getting insurance benefits.
There is quite a number of options on how you want to structure your income protection and it’s certainly worth getting a bit of advice. For our Financial Autonomy clients we can certainly work that through with you.
Ordinarily income protection would help you all the way through to age 65 if you needed it. So the typical scenario would be someone who suffered a broken ankle and they can’t work for 6 months or something like that. But if if was something more serious and you couldn’t return to work ever, your Income Protection insurance would pay you a monthly benefit every month all the way through to age 65.
So if you think of insurance as a financial safety net, then that income protection really achieves that, knowing that if anything did happen you would still be earning an income through until you were 65.
Then the fourth type of insurance is, Trauma Insurance. With this one, it is outside super, they will have a list of conditions such as; heart attack, malignant cancer, stroke, multiple sclerosis, etc. If you suffer any one of these conditions, and you have Trauma insurance, you will receive a lump sum payout.
You might apply for instance for $100,000 of trauma cover, and if you are later diagnosed with one of those conditions, you give the insurer a report from a specialist and one from your normal doctor, and within a few weeks typically, you will have your cheque for $100,000.
And speaking to Jenny, that’s the one that actually she wished Tim had had. She said income protection was difficult because of the self employment and the fact it was hard to prove income. She said her trauma cover was $75,000 and if Tim would have had that as well then that would have made things so much more comfortable. They wouldn’t have had to use the equity from their house sale, and it would have put them in such a stronger position.
Having dealt with quite a few claims for people, I can tell you that Trauma is great because it is just so black and white.
So we have Life Insurance and TPD, often though not always, through your super. Outside super you have Income Protection, which is tax deductible and Trauma cover which is just a lump sum for significant events.
So that is it for today, I hope you found it valuable. Like I said Jenny and Tim’s story is an unusual one that we can all learn from.
As always there is a Financial Autonomy toolkit covering the key elements of this post, so be sure to download it here:
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