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G & J

Valuing a Life

In the 1960’s and 70’s it was relatively common for parents to take out a whole of life policy for their children once they were teenagers. In that period there were tax deductions available so the cost was largely insignificant. The policy values in today’s dollar terms were also typically low at around $10,000. The chances are that the majority of these policies are no longer in effect having been cashed up for their not insignificant surrender values.

In 2011, IRD came up with a cost estimate for raising a child to the age of 18 being $250,000. No doubt by now it is significantly higher. If it costs this much to raise a child, then why is it that for the sake of a couple of thousand dollars extra, so many parents let their children drive around in vehicles without lifesaving  devices such as airbags or ABS braking systems?

We know that it costs a lot of money to raise a child to an age where they either leave school to get a job, or head off to a University or a Polytechnic to further their education. The chances are that as parents, we will be contributing to their educational or living costs, so the all up cost of raising one child could readily exceed $300,000.

It has been said that our children are our future. But what happens if something unforeseen should happen to a parent or to both parents? In the worst-case scenario one or more parents dies prematurely and he or she was the major breadwinner. Living standards for the surviving partner and children would probably decline significantly, and the opportunity for the child to gain a tertiary qualification may well be lost.

The best means of mitigating against this is through having appropriate insurance cover. This may include income protection, life cover and trauma insurance. How much cover and what type of cover to take out should be calculated carefully considering many factors. This should be the role of a skilled risk adviser. Of course, it is very easy to take insurance out over the internet, but you will only get what you pay for. The reality is that people will tend to have a mental figure as to how much they are prepared to pay per month for insurance. That figure, and a genuine calculated amount of cover can be poles apart.

There is a saying that nobody ever regrets buying quality. There is another saying that you only find out how good your insurance cover is at claim time. If you really value your life, or that of your partner, or your children, you have choices to consider and make. They all come with a price to pay. Not taking any action could well have serious consequences that can be intergenerational.

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.