A tale of two sisters

Carrie and Anne were both 42 year-old mothers of three, on incomes of $50,000 and with husbands on incomes of $80,000. Both families had mortgages of $280,000. Both also had $50,000 saved for retirement, accumulated from regular salary deductions.

One unfortunate day Carrie and Anne were both diagnosed with breast cancer. They had to give up work to endure the treatment and their respective husbands also had to take long periods of time off to look after the children and attend to their wives while recovering. Carrie had health insurance, so was able to choose the hospital and get immediate attention, while Anne endured the public system.

Carrie also had a 'trauma' insurance policy, which paid her a lump sum of $250,000 upon diagnosis of a serious illness such as cancer. This more than compensated for the lost income. In fact there was also enough to make a substantial payment on the mortgage and put a sum aside for future emergencies because from the time of the claim, she was no longer insurable.

Anne was not so fortunate. While her treatment was also successful, she had lost a year's pay and her husband had lost four months income. They came out of the treatment with their retirement savings of $50,000 cashed in and their mortgage increased by $30,000 to make up for the lost income, child care expenses and medical costs. Now 43, Carrie and Anne still have 22 years working life ahead of them (assuming retirement at 65) and have picked up their lives where they left off.

Anne and her husband started their super fund again from zero, saving at the previous rate of $600 per month; They would have about $270,000 saved at 65. Not bad, but that extra $30,000 on the mortgage would cost them another $43,000 in interest along the way.

Carrie on the other hand had the trauma policy payment, which replaced all the lost income, paid $100,000 off the mortgage and put $70,000 into an interest bearing investment for future major medical issues. As a result their mortgage was paid off 12 years earlier and with the mortgage payments from that point on redirected into the retirement fund (along with the $600 per month they didn't have to stop) they would retire with the princely sum of $1.05 million!! Quite a difference to say the least!