Introduction:
Risk management and personal insurance must be considered an integral part of the financial planning process. For example, have you thought about how your family or partner would cope financially if you died? Personal insurances can help to ensure that those who depend on you will not be financially disadvantaged in the event of your death, a medical crisis, or your disablement.
Most people purchase houses, cars, and health insurance without giving it much thought, but it is well-known that most people are either underinsured or uninsured for events such as death, trauma, or disablement. This article discusses the main types of personal insurance: life insurance, income protection, trauma insurance, and total and permanent disablement insurance.
Life Insurance:
Life insurance is straightforward – the policy owner receives the insurance proceeds if the insured person dies. A premium is paid for the selected level of cover, based on the insurance company’s risk. Factors such as age, smoking habits, and hazardous activities can affect the premium. Life insurance can be taken out inside or outside of superannuation. Premiums are tax-deductible inside superannuation but generally not deductible outside. Reasons for taking out life insurance include paying out debts, buying the full share of a business if a partner dies, covering funeral costs, and providing for your family.
Income Protection:
Income protection insurance, also referred to as salary continuance, is a regular payment made to you if you become disabled or sick and cannot work for a period. Premiums are affected by factors such as age, smoking habits, and occupation. The maximum percentage of salary covered is typically 70%, with varying waiting periods and benefit periods. This type of insurance ensures a steady income stream during periods of incapacity.
Trauma Insurance:
Trauma insurance pays a lump sum if you experience specified traumas such as cancer, heart attack, coronary bypass surgery, and stroke. It cannot be taken out within superannuation, and premiums are not tax-deductible, but claims are received tax-free. This insurance provides financial support for medical expenses and other costs during recovery from serious illnesses.
Total and Permanent Disablement (TPD) Insurance:
TPD insurance covers you for a disability that prevents you from ever working again. Definitions of TPD can vary among insurers, with some covering you if you cannot work in your current job and others if you cannot work in any job. Premiums are affected by age, health, smoking habits, and occupation. This insurance can be obtained inside superannuation, but only certain types are available.
Conclusion:
These are the main types of personal insurances available. It is essential to assess how well you are covered and ensure you and your family are protected. Your financial planner can assist you in determining the appropriate types and levels of insurance based on your circumstances.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
