We insure our cars, homes and contents, yet often we ignore the person who
provided the income to purchase all of these items. What would you do if you could no longer work? Where would your income come from? How would you meet your mortgage or living expenses? These are the questions we encourage all clients to ask when considering if they require life insurance.
There are four main types of life insurance, each aimed to reduce the risk of interruption of your family's income and lifestyle in the event of your death or disability (as a result of sickness or accident).
Death and Total and Permanent Disablement (TPD)
Death cover pays a lump sum in the event of death (or, in some cases terminal illness with less than 12 months to live. In general, Total and Permanent Disablement (TPD) cover is paid if you are unable to work because of ill-health for a certain period and are unlikely ever again to engage in gainful employment for which you are reasonably qualified by education, training or experience.
Total Permanent Disablement also has two types of cover: own or any occupation.
Should you be unable to continue employment, are unable to return to your ‘own’ occupation or to ‘any’ occupation. Consider the example of an accountant at the time of claim but had previous admin experience, and you could no longer do accountancy but still do admin work, you would be not entitled to receive the claim as you can work in an administration role. Both of these types of cover are available within superannuation, however the majority offer only ‘any’ occupation TPD.
In the event of sickness or injury Income Protection pays monthly benefit, in arrears (up to 75% of your income), after a nominated waiting period until recovery or expiry of the benefit period. As this benefit replaces income during this period of claim, it is classified as income and is taxed.
The individual can obtain such cover directly from an insurer or through a superannuation fund. In either case the insurance premiums are generally tax deductible but the benefit period can often be limited to two years within superannuation. If held personally, the individual may generally elect a benefit period of up to age 65.
Trauma cover is payable on diagnosis of specified illness or injury as defined by the policy. Some examples include stroke, cancer, bypass surgery or heart attacks. This is a lump sum benefit in the event of serious illness or injury but not necessarily a life-ending injury. The benefit can be utilised to fund medical expenses and alterations to your home, car etc in addition repaying debts.
The above commentary is provided for information only and should not be viewed as a recommended type or level of cover. We encourage all to seek professional advice before applying for any life insurance cover. Reference should also be made to the appropriate Product Disclosure Statements which outlines the cover, terms and conditions.
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Risk Insurances are complex areas and it is important to obtain expert advice. APS Financial Planning is here to help you.
APS Financial Planning can help you understand what risk insurance is right for you and your family.
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