Life insurance involves more than just “life” insurance - it also includes Income Protection, Critical Illness and Total and Permanent Disability (TPD) insurance. Here is a great article on the different types of life insurance available. Australian’s are chronically under-insured. We encourage you to make sure you have the appropriate life cover for your own situation.
People generally think of life insurance as just an insurance which pays out in the event of your death but there are several types of life insurance policies:
Life Insurance – pays a lump sum on your death but also very importantly most covers now include payment on the diagnosis of a terminal illness. This is becoming more prevalent nowadays with people getting more notice of a terminal illness and often some options to pursue new or trial treatments here and overseas that can be paid for from the insurance payout. So if the worst case scenario happens, by insuring the risk you can pay off the mortgage and other debts, provide for your children's education and child care costs, thereby securing your family's lifestyle. It may also be used or seek out treatments that may help you delay or overcome a terminal diagnosis. For example, a case where a client with terminal liver cancer was able to receive treatment that delayed the progression of the disease long enough to rise to the top of the transplant list. They beat the cancer and had enough of the insurance pay out left to pay down a substantial part of their mortgage so they had time to recover.
Income Protection / Salary Continuance Insurance– provides a replacement income of up to 75% (85% with super contribution cover) of your current income if you are unable to work due to illness or injury. This insurance can cover you for short or long periods and offer various waiting periods from 30 days to 2 years to suit your personal circumstances. If you have a good cash reserve or considerable sick leave and unused annual leave, then you could opt for a 90-day waiting period to lower costs. Depending on the policy, payments may continue right up to the age of 70 if the disability is ongoing or permanent. For most people their earning capacity is their biggest and most important asset and influences the lifestyle they will have in retirement if affected by prolonged illness or injury, if you buy this cover outside of superannuation it is tax deductible at your marginal tax rate. You should also choose the type of cover carefully to suit your individual occupation, age and whether employed or self-employed.
Critical Illness Insurance or Trauma – pays out a lump sum on the diagnosis or occurrence of one of a list of specific illnesses such as cancer, heart attack or stroke and comprehensive policies often make a partial payment on some more minor illnesses. That insurance lump sum gives you choice and flexibility at a time when you need it most. It is often used to let the you pay the costs for:
· Specialist treatment not covered by your health insurance.
· To allow you to reduce your working hours.
· For your spouse to take time off to care for you.
· Mortgage repayments.
· The ongoing cost of any therapy and special transport costs
· Adjustments to housing, vehicle and lifestyle changes
Total and Permanent Disability Insurance – pays a lump sum if you become permanently disabled and are unable to ever work again. You can use this lump sum to cover the costs of rehabilitation, debt repayments and invest so that you have an annual income to help maintain your lifestyle. Your insurer will define TPD as either when you:
· You can't work again in “any” occupation which is the standard basic cover available through superannuation, or
· You can't work in your “usual or own” occupation which is a more comprehensive cover that is only available outside of superannuation or via an additional policy held in your name but linked to your super cover.
When deciding if you need TPD cover, think about:
· How much income you and your family will need to live if you can't work for a while or forever?
· What help or family assistance is available to you?
· Does your private health insurance offer board comprehensive cover?
· Whether you could sell your home and move somewhere else or sell other assets to reduce debt?
· What government benefits support or workers compensation could be available to you?
Business Expenses Insurance and Key Person Insurance– business expenses insurance covers the ongoing costs of your business if you are self-employed and cannot work due to illness or injury. Key person insurance covers the losses incurred when a person essential to the success of your business is injured, becomes sick or dies.
It is always worth reviewing your insurance needs regularly as your circumstances and priorities change through your life-cycle. Income protection may be important while you have debt but Trauma protection may become more important as you approach retirement as your age group become more susceptible to cancer or stroke.
Talk Stu Varidel our Principal Financial Adviser for advice and assistance with this matter via 1300 861 143.
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