Life and Disability Insurance
Wealth is worth protecting
When we think of life insurance, a number of different specific types of cover can be included, all revolving around your life one way or another. Below we describe each of these types of cover.
Caution: Not all insurance policies are equal. While we attempt to describe each of these types of insurance, the benefit you receive will be defined by the policy that you pay for, not our definitions. When we give advice on insurance, one of the significant things that we do is to use our research to compare the policy wording for each insurer.
A given insurer will also provide the same type of insurance in different situations with different definitions, policy wording and aspects of cover. For example, an insurer may have done a deal to provide all of the insurance offered by a given industry superannuation fund. In doing so, they first of all had to limit the nature of the insurance cover to what is allowed in superannuation, then, beyond that, they had to compete with other companies in getting that contract, so they may have cut back on certain aspects of the cover to be able to offer the lowest price. It's great having low cost insurance, but it's not so wonderful if the aspect of the cover that you really need isn't covered.
Term life insurance - death cover
You build wealth for more than yourself. There are others that you truly care about. Term life is insurance that provides a benefit if you die, or are diagnosed with a terminal illness with a given time frame.
Total permanent disability (TPD) insurance
Insurance is meant to protect you from those things that you cannot afford to have happen. Perhaps highest on that list is something that keeps you from ever working again. Not only does it take away your ability to create wealth through the rest of your life, but your own living expenses continue, and on top of that, there may be medical and other expenses involved in providing support related to your disability. Total Permanent Disability Insurance is designed to cover that need.
Income protection/salary continuance insurance
A disability may not be permanent, yet it could still put you out of action longer than what you can afford. Again, the recommended approach is to take care of what you can with your own resources, then get insurance to look after the rest.
Income Protection insurance has an appropriate design to allow you to cover what you can, and have the insurance take care of the rest.
If you are injured or have a medical condition that keeps you from working at all, the first response to that is for your employer and you to look after the need. You have whatever sick days or personal leave that are alloted to you, and after that, you apply savings, home loan redraw or cash in on investments for a period of time. That is your time of "self insurance", and by covering the need yourself, you save money.
In that initial time of disability, your income protection policy is in its "waiting period". That's a specified length of time from the beginning of the total disability to the time that the insurance starts making payments. By the way, there is a bit of a trap here. While the insurance payments "start" at the end of that period, they typically are paid monthly in arrears. Because they will stop after you return to work, they cannot pay you in advance. They have to wait to see that you have not worked before they can pay you. So, add on a month to the official waiting period to work out how long your "self insurance" strategy needs to be able to cover.
Trauma/critical illness insurance
The final category in the broad range of "life insurances" is Trauma or Critical Illness insurance. Unlike TPD or income protection insurance, it is based on a medical diagnosis, not your ability to work. What happens if you are diagnosed with a severe medical condition that really needs attention now, yet it will take some time before it actually puts you out of work. Wouldn't it make sense to focus on it instead of working yourself into the grave? Critical Illness cover would allow you to do that.
The insurance company lists a number of really nasty things that might happen to someone: severe heart attacks, severe cancers, organ failures and a lot more. Often there is a choice between a short list of the most common conditions, or a much larger list including all of those and a lot more. If the doctors agree that you have the defined condition, you get the lump sum payment of the amount of insurance cover.
Child or family insurance cover
With the better quality of insurance policies, there is often the option of adding on cover for the kids in a given age range. That's typically from about 2 to 18. What is covered varies, but the core of it is critical illness cover. That's because such a thing can bring financial devistation to a family. This can come from parents having to cut back on work, seek specialised medical treatment and have ongoing care provided, not to mention having to get a specialised vehicle, make mofifications to the family home and get appropriate education and therapy.
The child cover can normally be added as a rider unto one of the parent's policies, and it doesn't cost all that much.
Life and disability insurance FAQs
what is TPD insurance?
TPD stands for "Total Permanent Disability"
"Total" generally means that you are not able to work at all. However, most policies will have an allowance to be able to do a little. So it might be that you are unable to work a certain number of hours per week, or unable to perform one or more necessary tasks at work, or that you are unable to earn a certain portion of your income. There are big differences in these definitions and they make a lot of difference.
"Permanent" means that doctors don't expect it ever to change.
"Disability" means that either it is making you unable to work, or to be able to perform basic functions of daily life, such as feeding yourself or being mobile.
The specific wording of the policy on these matters is vitally important, and one of the basic things that we do for our clients when recommending insurance is to compare the policies in these areas.
What is income protection insurance?
Income Protection Insurance, sometimes called "Salary Continuance Insurance" pays a replacement income stream during a time when a person is disabled and not working. The condition might be temporary or permanent. It doesn't start making the payments right away as there is a waiting period that must first be fulfilled. Once that is completed the time begins for payments to be made, however, it's likely that it will still be another month before they start. If they are paying monthly, they need to wait until that month is complete before they know how much to pay you, as it will change if you go back to work for part of that time.
Payments continue until the benefit period is completed. that might be 30, 60 or 90 days, or it might be all the way to your 65th birthday.
Premium payments for income protection insurance are tax deductible, and the payments it makes to you are taxable.
What is trauma or critical illness insurance?
Trauma cover, or critical illness insurance, as it is also known, provides a lump sum payout upon diagnosis or confirmation of a specific level of a major health condition. It's easy to claim on, because medical science is quite precise and specific in identifying severity of things like heart attacks and cancer, and given that your condition matches or exceeds the minimum requirements, you have a claim.
The insurance policy specifies the conditions that it will pay out for, and typically they include heart disease, heart attacks, various cancers, organ malfunctions, and even a specific period of time in intensive care. there is significant variation between what is covered between different insurance companies, and the wording of the policy is extremely important.
Most insurers have a base level policy that covers the most common conditions, such as heart attacks and cancer. Then they will have a "plus" level of cover where they list perhaps dozens more conditions that they make a payout for. Most policies will also have a list of things that they make a full payment for, then others which will make a partial payment.
If you haven't worked it out yet, it ought to be obvious that you need some professional help in sorting out which policy is going to be best for you. That's what we are here for!
Your first consultation is free, so there's nothing to lose in having a chat. And you won’t miss out by ignoring the opportunities. Call us today on 02 4905 0250 or get a head start with our Online Advice.