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  • Writer's pictureThe Economist

Your survival guide to personal insurance

Stumped on insurance? We’ve made a quick and convenient guide to assist, everything from what cover does what, to how premiums work.

Personal insurance explained

As individuals, we insure our possessions but don’t always insure the most important thing – ourselves.

If something was to happen to you, how would it affect the future of your family finances?  Without your income will your family be forced to sell the home?  Would your spouse be forced to work two jobs just to get by?  Would your kids miss out on daily essentials?

The main types of insurance cover are as follows:

1. Income Protection Insurance (Illness & Accident)

This will provide payments if you are unable to work for a certain amount of time if you are sick or injured outside of work. It is designed to help maintain your lifestyle by ensuring your cash flow needs and expenses can continue to be met during a period of absence from work.

Income Protection usually offers covers for up to 75% of your gross wages for a maximum time period of your choosing (usually between 2 years or to the age of 65).  You will need to pick a waiting period when selecting your level of cover (often 30 to 90 days) – before you can make a claim. These options will have an impact on the premium you pay, so we recommend a needs analysis to uncover which options are most suitable for you and your situation.

Everyone who relies on a regular income needs to consider income protection. Your ability to earn an income is possibly your most valuable asset and should be protected.

If paid for personally, the premiums that you will pay for this type of policy are generally tax deductible. If you hold your insurance within super, the super fund is able to claim a tax deduction on income protection insurance premiums which can reduce the cost of the cover.

2. Trauma & Critical Illness Insurance

This will pay a lump sum benefit if the individual suffers a major medical event (i.e. cancer, stroke, heart attack etc).  The benefit is paid regardless if the individual is able to work or not.  

Benefits can be used to pay down debt, seek specialist medical treatment or make lifestyle changes (taking time off for treatment or reducing work hours).

This lump sum can also be used to ease financial stress during a period of recuperation, where items such as home modifications and specialist medical attention may be incurred.

3. Total & Permanent Disability (TPD) Insurance

This provides cover if you are totally and permanently disabled through injury or illness and unable to work ever again.  

The lump sum payment can be used to pay down debt, seek medical advice and make lifestyle changes (i.e. move to a home that is more accessible for your new condition).  

Some policies will cover if you can’t work again in your USUAL occupation, whilst some cover if you can’t work in ANY occupation – so it’s important to read the fine print.

4. Life Insurance

This provides a lump sum payment to your nominated beneficiary on your death or being diagnosed with a terminal illness (access this cash earlier).  

If you have not nominated a beneficiary on the policy the payment will be distributed according to your Will.  

The purpose of life insurance is to provide your family with financial security if you were to pass away.  

The level of cover can vary dramatically depending on the individual’s needs. As a general rule, you should aim to have enough cover to pay all large debts and provide your family or other dependants with a lump sum that can be invested to earn an income to replace your lost earnings.

Do you need life, TPD or trauma insurance cover?

If you answer YES to any of the questions below, then you may need to consider life, TPD or trauma insurance cover:

  • Do you have debts? Such as mortgage, credit cards, personal loans?

  • Do you have dependants? You need to think about their ongoing needs such as education expenses.

  • Do you have children from a previous marriage? Blended families tend to create more insurance needs.

  • Are you in a relationship and are you both in paid work? If your household needs two incomes to maintain your mortgage repayments and existing lifestyle, then you should both have adequate insurance cover.

  • Do you have dependent parents? Something we often overlook is our responsibility to help care for our ageing parents.

  • Do you have loose ends which need tying up such as money owed to family or friends?

Do you need Income protection?

Most of us insure our cars and houses, but we often don't insure our most valuable asset – our income! A consistent income stream is the lifeblood of families and business. You can insure your income for a very small percentage of your annual income.

If you answer NO to any of the questions below, then you may need to consider income protection:

  • Are you wealthy enough to be able to survive without your income?

  • Could you maintain your current lifestyle on social security (Centrelink) benefits?

  • Will your accumulated sick leave cover you for a long-term illness? If you are self-employed, you don't have any sick leave!

  • Could you maintain your superannuation contributions if you didn't have an income?

How are premiums calculated?

Generally, premiums are based on the sum insured, age, sex, occupation, hobbies, smoker/non-smoker status, general health and other options chosen. Premiums can be stepped (they change with age) or level (fixed for an agreed time), with assessment differing from insurer to insurer.

  • Stepped premium – your premium increases every year with your age.

  • Level premium – your premium generally does not change and is based on your age when the policy commences.

While stepped premiums are usually lower in the early years, level premiums can be a more cost-effective option if you retain the insurance for a longer period of time. If insurance cover is only required for a short timeframe, a stepped premium may be more appropriate and cost-effective.

Level versus Stepped premiums

Hope this helps.

However, to create a tailored insurance plan specific to you and your needs, contact us for a chat to learn more.


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