Many of our clients contact us enquiring about the different types of personal insurances, and many are confused about all the different types of cover. Even those with some personal insurance tend to be shocked to find out they are not covered for many catastrophic events which may leave their loved ones exposed to some pretty dire financial consequences. So what are the different types of personal insurance, why do we need them and when will they pay a benefit? Below, we briefly explain the different characteristics of some policies and why they should be important to you.
The first form of personal insurance is designed to cover the most unpleasant of events; Death. As most of you know, life insurance pays our beneficiaries a lump sum benefit when we ‘kick-the-bucket’. Designed to give you the security of knowing that if something were to happen to you, your family and loved ones would not be left with a huge financial burden. Some of the benefits include;
Help pay for funeral costs. According to ASIC’s Money Smart website, funerals in Australia can range from anywhere between $4,000 for a basic cremation to $14,000 for a more elaborate funeral and wake1.
Assist with mortgage repayments. According to some research in 2010 regarding the experience of dependants who had lost a financial provider with no insurance cover. Of these people, 1 in every 3 would be forced to relocate as a result of financial pressure within 2 years of the death of their provider2.
Provide income for your partner while they adjust to new circumstances and may have to start work.
Ability to contribute to the financial obligations that your family will be faced with, now and possibly for years to come.
Death is not something we like to think about, especially in the prime of our lives. However the reality is, we have many financial obligations, and in the event of our death, the lack of planning could have a detrimental effect on those you hold most dear.
Even, if you already have life insurance, you may still be underinsured. Check your policy; has your situation changed since you started it and are you being realistic about whether the benefit will sufficiently help your loved ones.
Total and Permanent Disability Cover (TPD)
This cover is sometimes bundled in when you buy a life insurance policy. Simply put, TPD insurance provides a benefit if you are totally and permanently disabled. Whilst life cover provides a benefit upon your death, this cover supports you and your dependants if you were seriously ill or injured and this made it difficult or impossible to continue to work.
When investigating TPD cover make sure you read the PDS and ask your insurer what they define being totally and permanently disabled as. Each insurer is different so you just need to make sure you have some clarity.
Trauma insurance pays you a one-off lump sum if you have a serious medical condition, like cancer, heart attack, or a stroke. Insurers will usually have a list of specific conditions that you will be able to claim a trauma benefit from. Sometimes they will offer a restricted list or a more comprehensive list with premiums being either cheaper or more expensive respectively. Trauma insurance can give you that instant security by providing you money when you need it most.
It’s the more expensive insurance of the ones described however, this is due to the fact it is the most often claimed and is therefore not insurance that should be overlooked. Just think about- if you were to be diagnosed with cancer and this resulted in you being off work and in treatment for a year, you wouldn’t receive a benefit from your life policy, nor your TPD cover (because technically you could return to work one day). How long could you afford to meet your financial obligations or support your dependants? Trauma insurance will give you that peace of mind, and provide a lump sum benefit to ease those pressures while you concentrate on your recovery.
It seems that income protection is being advertised everywhere but what does it cover? Simply put, income protection policies are design to provide you and your family a steady stream of income if you can’t work due to temporary illness or disability. Generally, insurers will pay a benefit of up to 75% of your gross monthly income. It will provide you the security of knowing that most of your daily expenses and financial obligations can be met whilst you focus on your recovery.
Some things to consider when looking at income protection:
The waiting periods. Most providers will offer waiting periods between 30 and 90 days. A good thing to do is make a note of how much your leave balances are and then select waiting period which reflects those entitlements. For example, if you have 8 weeks of annual and sick leave balances, you may want to opt for an 8 week waiting period. Remember the longer the waiting period you select, the lower the premium.
Does your Super Fund offer income protection? It can be expensive so why not look into whether you can purchase it through your Super Fund to save your monthly budget.
Review your policy every time your personal and professional circumstances change!
Things to keep in mind
Where to start with all these options?
Well, the first step is actually working out what benefit you would require in light of any of the above scenarios. Some may feel comfortable working this out themselves, but others may need to speak to an advisor or broker to ensure they are adequately insured and protected. Also, it is vital that even if you have insurance, you review your situation and ensure you have the correct level of cover to support you and your family.
Next, do some comparisons. Use simple comparison websites such as YourShare to compare prices and coverage from a number of different providers. In addition, contact you Super Fund to see what they can offer you.
Finally, read the PDS and ask lots of questions. Make sure you know the details of your policy so you can be confident that you have the best financial protection for you and your loved ones.