Personal Insurance - "What if?" and Why we Want to Help you Navigate the Minefield
By Kathy Hope
No one really likes to talk about the negative “what-if’s” of life especially death and disablement, so it’s easier to just keep thinking that we’re invincible and bury our heads in the sand. That works great until something goes wrong….
For me the value of insurance really hit home when about 5 years ago, a friends’ husband was diagnosed with terminal cancer in his early 30’s, they had 2 young children and had just bought a property. All of a sudden that “what if” for them was actually happening. Lucky he had life insurance. Now no amount of insurance is ever going to bring my friends’ husband back or dull the pain of him passing, but what it did do was remove the financial stress from an already horrific situation.
I’ll be frank, personal insurance is a minefield, working out what you need is one thing, understanding the terminology and differences in policy definitions is like trying to understand the “there, their and they’re” of the English language when you were brought up speaking Mandarin, well actually even if you were brought up speaking English it can still be a struggle.
Here’s an overview of the different types of personal insurance:
- Life Insurance – this is pretty self-explanatory, sorry to be morbid but if you die your life insurance will pay a lump sum to your nominated beneficiaries or your estate.
Why is this important? You may have debt or financial obligations that your surviving partner or dependants are unable to repay if you are no longer around continue paying it.
Often you have some level of Life insurance within your super fund, the key question though is, “is the amount you’re insured for enough to pay off your debt and meet those financial obligations?”
- Total and Permanent Disablement (TPD) – this appears somewhat self-explanatory, however the devil is in the detail. TPD insurance provides you lump sum cover should your be totally and permanently disabled and unable to ever work again.
It’s important for similar reasons to your Life insurance however, and my apologies for the doom and gloom again, if you’re totally and permanently disabled you will likely have medical or home/car modification costs to deal with as well.
Like Life insurance you may have some level of cover within your super fund and you should be asking yourself the same question, “Is the sum insured enough?”
Now to the detail, the definition, there are two, “Any occupation” and “Own occupation” some policies, particularly those within your super fund, will only allow you to claim on that policy if you are unable to return to “Any occupation” whereas others cover you if you cannot return to your “Own occupation”. The key question here is, “would you be happy to change occupations if you were unable to continue in your own?”
- Trauma – AKA Critical Illness – self-explanatory but bear in mind that not all Trauma policies are created equal. Essentially, this type of insurance provides you a lump sum if you were to suffer a Trauma event such as heart attack, cancer or stroke.
Why do you need Trauma insurance? Like TPD, if you were to suffer a Trauma event you may have medical or home/car modification costs that aren’t covered by your health insurance. You may also find that you need to cover lost income if your Trauma exceeds your holiday and sick leave.
This all sounds simple enough, but I mentioned that not all Trauma policies are created equal, you should also be mindful that policy definitions such as what constitutes a heart attack can vary dramatically between providers and a policy is worth little if you are unable to claim on it.
One more important point, Trauma cover isn’t held within super so unless you’ve actively put Trauma insurance in place you are unlikely to find that you have this type of insurance cover.
- Income Protection – once again, this looks pretty self-explanatory and straight forward. Trust me, it’s not. Income protection is designed to provide you with a salary if you are unable to work due to illness or injury. In general you are able to cover up to 75% of you current salary.
Why do you need this? More to the point, how would you replace your income if you were unable to work due to illness or injury? Yes Centrelink provides benefits, but you need to consider how your lifestyle would be affected if you were to rely on them.
Once again, the devil is in the detail and essentially there are 2 types of policies; Indemnity and Agreed Value. The definitions of these can also vary widely between insurers and can have significant impact on the benefit you will receive in the event that you need to make a claim. There are also many options available when it comes to waiting and benefit periods that will not only affect your premium but also affect your ability to meet your financial responsibilities both short and long term.
Like Life insurance you may have some level of cover within your super fund and you should be asking yourself some key questions, “Is the sum insured enough?”, “Do I have enough cash reserves or leave to cover my income during the waiting period?” and “Is the benefit period really sufficient, where will my income come from when my insurance ceases?”
Just remember, we are here to help you achieve your goals and that includes managing risk, not just through the diversification of your investment portfolio but also through insurance. It’s really worth seeking advice to make sure you and your family are adequately protected.