Personal insurances such as life insurance provide protection from the financial consequences of death or disability. They are, therefore, an important part of most financial plans.
When we work with our clients, we often here these 5 questions time and again, so to help you get a better understanding of how life insurance can benefit you, read on.
What are the different types of personal insurance?
Life insurance pays a lump sum benefit when you die.
Total and permanent disability insurance (TPD) pays a lump sum benefit if you become being totally and permanently disabled (aka meet the legal definition of that condition). It is often bundled with life insurance.
Trauma insurance is also sometimes called Recovery insurance. This type of insurance pays a lump sum benefit if are diagnosed with or suffer from one of the specified illnesses, such as cancer, heart attack, or stroke.
Income protection insurance takes effect if you are unable to work due to illness or injury. Income protection insurance will pay you a regular income (usually capped at 75% of your pre-illness income). At the time of purchase, you can select the waiting period before benefits become payable, and the length of the benefit period.
How much personal insurance should I have?
For Life and TPD cover, one easy guideline is to figure out how much is needed to pay off your debts plus provide for current and future family living expenses. Subtract from this total the value of your current investments (including superannuation). This will give you an approximate value of your needed insurance cover.
Of course, individual circumstances vary widely. Your financial adviser can help you assess your needs and resources, and perform the relevant calculations.
How often should I review my personal insurances?
Review your personal insurances whenever there is a major change in your personal situation.
Some typical such events include:
- Taking out a home loan
- Getting married or setting up house with someone
- Starting a family
- Receiving an inheritance
- Retirement
Generally, as savings increase and debts decrease, the level of cover required reduces over time, but again, much depends on your individual situation.
How do I understand my life insurance contract?
Understanding what is and isn’t covered by your life insurance is important. This is detailed in the Product Disclosure Statement of your policy, so it’s important to read and understand this. If you are unsure about anything, your advisor can go over with you and answer any questions.
How do I choose the best personal insurance cover for me?
While pure life insurance is pretty straightforward, other types of personal insurance may differ significantly from policy to policy.
Some examples might include:
- varying definitions of diseases
- a range of optional extras (some valuable, others more of a gimmick)
- a choice of “own occupation’ or ‘any occupation’ (with TPD insurance)
- the speed in which claims are processed
- and more
And then there is the question of which insurances should be held via a superannuation fund and which should be held directly.
More than one third of Australian families have no personal insurance cover whatsoever. Many more are under-insured, even though the financial impact of not being adequately insured can be severe. The help of an experienced financial planner is the best way to navigate this complexity and select the best insurance cover for you.
So, put your mind at rest. If you have any concerns about the level of protection provided by your current personal insurance policies talk to a Think Big Financial Group adviser today.
This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs. Speak with a tax accounting specialist (such as TBFG) who is up-to-date with applicable deductions, tax law, and business structuring to get you the biggest return on your EOFY tax assessment.
