The real cost of being underinsured: A story too many families know

Paul Taylor was a fit, active 45-year-old executive who drowned while swimming during a family holiday. On the beach that day were his wife, Sue, and their children, Sophie (15) and Zac (12), watching in horror as their lives changed forever.

In the weeks that followed, support poured in from relatives and friends. But soon, Sue faced the cold financial reality of life without Paul – and without the income they had always relied on.

A high income didn’t mean financial security

From the outside, the Taylors appeared financially secure. Paul’s executive role provided a strong six-figure salary, which enabled the family to purchase a beautiful home and send the children to private school. Sue contributed part-time income, mostly used for holidays and lifestyle extras.

But behind the scenes, like many Australian families, their financial security was underpinned by debt – including a mortgage of over $1 million. When Paul passed away, his only life insurance was the $250,000 policy held within his superannuation.

While that might sound like a reasonable amount, it barely scratched the surface of what was needed. Even after combining the $250,000 payout with Paul’s $300,000 superannuation balance, the $550,000 total still left a gap of more than $450,000 on the mortgage alone – not to mention school fees, daily expenses, or any ongoing income for Sue and the children.

Had Sue chosen to stay in the home, the repayments would have been unaffordable on her part-time income. But increasing her work hours to full-time would still not generate enough income to cover the shortfall, let alone provide the same quality of life.

Hard decisions under enormous pressure

Grieving and overwhelmed, Sue made the only decision she felt she could – sell the home. She accepted the first offer, below market value, in order to discharge the mortgage quickly. The children were moved to public schools, and the family relocated to a more affordable area.

It wasn’t just about money. The disruption to the children’s lives, friendships, and schooling had lasting effects. Sophie, in particular, struggled emotionally – the school change during Year 10 triggered a clinical depression diagnosis, a tragically common outcome for children forced to change schools due to financial hardship.

When underinsurance affects more than one generation

The ripple effects continued. Zac, while emotionally stable, felt the unspoken pressure to ‘grow up fast’ and support his mum. Paul’s parents – retirees living on the age pension – pitched in to help, providing what little they could to ensure their grandchildren didn’t miss out entirely.

And with Paul being an only child, the long-term support his parents had hoped for as they aged was no longer an option.

Why high-income earners are often at risk

Many assume that earning a high income or living in a beautiful home means financial security. But as this story illustrates, a lack of adequate life insurance can quickly unravel years of hard work and planning.

In Paul’s case, he hadn’t ignored life insurance – he simply hadn’t reviewed it in years. It had never kept pace with his increasing income, debt, or family obligations. Like many busy professionals, he assumed his superannuation-based policy would be enough.

What might have been different?

Had Paul and Sue reviewed their cover when they bought the home or enrolled the children in private school, they may have increased their insurance to reflect their actual liabilities and lifestyle.

Even an additional $750,000 in cover could have:

• Cleared the mortgage entirely
• Funded the children’s school fees through graduation
• Provided Sue with a financial buffer, allowing time to grieve without pressure to return to full-time work
• Preserved the family’s location, social networks, and sense of stability

In short, it could have protected not just wealth, but wellbeing.

Getting it right – and getting help

Life insurance doesn’t fix grief. But it can protect the people you love from added hardship. And when structured properly, it ensures that a tragedy doesn’t become a financial crisis.

That’s why it’s essential to speak with a financial adviser who understands the needs of high-income professionals and business owners. At Lume Wealth, we help clients:

• Accurately assess their insurance needs
• Structure policies to cover both debt and income replacement
• Review cover as life circumstances evolve

The time to act is before something happens

If you haven’t reviewed your life insurance recently – or if your current cover hasn’t kept pace with your financial life – now is the right time.

Get in touch for a confidential conversation. It’s never too early to protect your legacy.