As you may already know, my wife and I recently welcomed our second child into the world. Honestly, it was just as good as the first time and the thrill of creating life and having something so small and beautiful totally reliant on you is quite overpowering. I guess I was a little more relaxed this time around as I had some idea of what to expect, but when it happened the first time I got a little worried about… well everything and consequently wasn’t thinking quite as rationally as usual.
In my haste to ensure my wife and I could provide the best for our child I made some very quick decisions about life insurance and income protection and had a financial advisor set up some rather expensive protection through our pension plans (superannuation funds). The cover was good, so it put my mind at ease in that regard, but the fees were really high and impact on our pension plans was pretty evident the next time a statement came in.
Unfortunately it is almost as difficult leaving a pension plan as it is signing up for one, so it took a bit of time to arrange a new one and to roll everything over. On the bright side I did it myself the second time around after learning a few lessons along the way. In hope that you don’t suffer the same fate, I figured I share a few things with you.
Although I really knew better, I let the financial advisor select our pension fund provider. Generally it is the trailing fees or finders fees that help them make this decision as much as any real benefit to you. Finding a good pension provider is like finding a good bank, spend some time doing your research and find a good provider with the features you want. I’d still recommend having a broker look at it too, the service is free after all.
The good part about using a financial advisor to set up our initial funds was that I got to see what they were providing and how. The life insurance and income protection market can be a financial mine field if you are trying to do things yourself, so taking that information and applying it in a different setting was pretty helpful. The key for us was arranging this insurance through our pension funds so that we didn’t have any additional out of pocket expenses. Once I knew how to do that, it was easy enough to find a better way than the one we had initially been provided and to work out exactly how much cover we really needed.
Something I did do right was realise my error reasonably quickly and take action to change it. If I’d left things the way they were for an extended period of time it would have had a significant effect on our long term funds. What starts as small amounts in the present can amount to a very large difference over time. Almost everyone knows this, but many of us don’t do anything about it because it is a hassle. Service providers know this too and make it as hard as possible for you to stop using them, don’t fall into the trap.
I definitely don’t ever want to use income protection, or worse still life insurance, but I do want to ensure the people I love are safe. My theory is simple; if you get it, you will probably never need it, but I don’t want to leave home and investment loans hanging around for other people to deal with.
Does your pension plan perform well and do everything you want it to?