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Personal Insurances

Personal insurances

What are Personal Insurances?

Personal insurances is an umbrella term sometimes used to describe insurance that can cover you and your family. For instance, events such as a serious injury or illness, loss of ability to earn, total and permanent disablement or even death.

This type of insurance can help you by providing a financial buffer for your family. In due course, this can prove especially important if you have dependents. You can get personal insurance as stand-alone policies or through your superannuation fund.

There are four types of personal insurance available to you; they are:

  • Life cover
  • Total and permanent disability cover
  • Income protection
  • Trauma cover

What is Life Cover?

When you have life cover, your insurer may provide a lump sum to the people you nominate in the event of your death. Although the insurer may also release this money sooner if you become terminally ill, this will depend on your policy conditions.

Considerations to bear in mind:

How much life cover your loved ones are entitled to under your policy

A regular review of the amount of your cover is highly desirable. Reason being is that as life circumstances changes, so might the needs of those you leave behind. An example of this would be a new home purchase and higher mortgage debt.

When you or your loved ones can receive that lump sum or payout

“Time is of the essence” could be a factor. This is because a timely payout could help you to pay for home care or other costs if you became terminally ill.

Who you have nominated to receive the money when you die and whether those nominations are legally binding

Whoever is nominated to receive the policy proceeds when you die are known as your “nominated beneficiary/ies”. Notably, if your nomination is binding or non-lapsing, then it is legally enforceable and cannot be changed after you die.

What is Total and Permanent Disability Cover?

Total and permanent disability (TPD) cover pays you a sum of money if you become totally and permanently disabled and are unable to work. However, if you become totally and permanently disabled, keep in mind that this definition can change from one policy to the next. Also, when you claim this money, you could use it to help pay for rehabilitation costs, living expenses and paying down debt.

TPD cover can be complicated. So, it’s very important that you read your Product Disclosure Statement in full and ask as many questions as you need to before you sign up. TPD cover is usually purchased with life cover, although it is possible to take it out separately.

Considerations to bear in mind:

How your total and permanent disability is defined by your insurer and under your policy

This can vary from one policy to the next. As such, “Total and “Permanent Disability” can be defined as being “unable to work in your usual occupation” or “unable to work in any occupation”, for example.

How much you are covered for and how long it will take your insurance provider to pay you the money

A useful resource you can use is ASIC’s Insurance claims comparison tool. This tool will help you see how different insurance providers accept and handle claims and how soon they pay them.

What is Income Protection?

Also known as salary continuance, income protection allows your insurance provider to pay you a regular income if you become unable to work due to illness or major injury.

As such, you usually receive about 75% of your regular income, which is paid out in instalments like a salary.

Considerations to bear in mind:

How ‘being unable to work’ is defined and what criteria you need to meet in order to make a claim

As with your TPD cover, the definition of being “unable to work” can vary. For example – from being defined as “unable to work in your usual occupation” or “unable to work in any occupation”. Additionally, it’s also worth you checking whether mental health issues are covered.

How much you are covered for and how long your insurance provider will take to pay out the money you’re entitled to

It’s quite likely that you will want to start receiving payments quickly. Since you may have health or rehabilitation costs to pay for, on top of your everyday expenses, check if there’s a waiting period. Again, for the same reason as for TPD comparisons, try using ASIC’s Insurance claims comparison tool.

Whether to get “agreed value insurance” or “indemnity policies”

Under agreed value insurance, you’re able to nominate a fixed claim benefit of up to 75 percent of your income at the time of taking out the policy.

Although Agreed Value policies may be more expensive, they can come in handy if there’s a chance your future income could drop. Indemnity policies adjust your benefit value to reflect your income at the time you claim.

Indemnity policies are often cheaper. However, they could mean that you get less money back if you drop down to part-time work or become unemployed.

How long the income protection cover is set to last you

With some policies, you may be covered from two to five years. On the other hand, other policies you may cover you until you turn about 65. The length of your cover will impact the price of the insurance premiums. In general, the more you pay, the longer your insurer will pay you an income.

What is Trauma Cover?

With trauma cover, your insurance provider may pay you a sum of money if you are diagnosed with or experience a life changing illness or injury. Consequently, events such as cancer, heart attack, coronary bypass or stroke may allow you to make a claim on your policy.

Considerations to bear in mind:

How a life changing illness or injury is defined by your insurer

If you have private health insurance, you should also factor in what you are covered for under your private health insurance policies. This is because you should ensure that there is no overlap in terms of what you’re paying for.

How much you are covered for and how long it will take your insurance provider to pay you

You might need money quickly to cover health and rehabilitation costs. You might like to refer to ASIC’s Insurance claims comparison tool. It is useful to see how different life insurance providers accept and handle claims and how soon they pay them out.

What Your Insurer Needs to Know

You need to provide them with your accurate details about your health, work and recreational activities.

It is imperative that you always be up front with your insurance provider. The consequences are that, if you’re not, your claim can be knocked back.

Health

If you take out a life insurance policy, you have a duty of disclosure. Therefore, this means that you are required to tell you insurer, for example, if you are a heavy smoker, have a serious health condition or a terminal illness. You can get cover for pre-existing conditions but may need to pay more.

Work and Play

You also need to tell your insurer if you work in a risky environment or take part in risky recreational activities.

Consequently, if your job requires heavy manual labour, you are deemed riskier than if you work in an office. Similarly, if you take part in adventure sports such as snow skiing or motor racing, you also need to tell your insurer. 

Personal Insurances

Other Forms of Insurance Cover for You to Consider

In brief, these can include:

 > Home, content and personal valuables insurance

 > Car insurance

 > Landlord protection insurance

 > Travel insurance

The fall-out and consequences of you not being adequately protected can be immense. Hence, it will pay you to regularly review your insurance needs on a regular basis with your Wealth-IQ financial adviser.

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