Does Life Insurance just pay out on Death? What else does it cover?

Written by Ronald Pratap

on December 5, 2016

I had a young client come in the other day into our Oran Park office and ask me why he needed life insurance when he is fit and healthy. After explaining to him the different coverage types and what the insured events were covering- including 24 hours a day, 7 days a week worldwide protection he started seeing the value of having an adequate protection plan in place so as to not be a burden on his partner and loved ones if something were to go wrong.
This made me wonder that there are other people out there that generally think that life insurance only pays out a lump sum benefit upon the event of death; however there are several other types of insurance that fall under this category and I have broken this down to show you the different elements.

Life Cover

This will pay a lump sum benefit in the event of death and can also include a benefit for those that are diagnosed with a terminal illness (Policy wording changes with each provider). This cover will allow the life insured to cover their debt, living expenses, loss of income, education expenses and securing their family’s lifestyle. The terminal illness benefit will allow the life insured to potentially seek out overseas or trial treatment that may be available at a high cost and delay the progress of the disease.

Income Protection

This benefit will provide a monthly income supplement of up to 75% of gross income if you are unable to return back to work due to sickness or injury. The premiums of this cover are affected by the various waiting and benefits periods which can be determined by your personal circumstances and budget. The benefit period can be as little as 2 years all the way up to 70 years with some providers. Our income is potentially our biggest and most important asset which funds our lifestyle, so suffering an injury or illness that can leave you out of the workforce for a prolonged time will leave you in a financially stressful situation without adequate cover.

Income Protection held outside of superannuation can be claimed as a tax deduction at the end of the financial year and premiums will vary depending on occupation, age, sex and smoker status.

Trauma Insurance or Critical Illness Insurance

This cover differs from the others as it will pay a lump sum benefit on diagnosis or occurrence of one of the specified events in the PDS whereas the other insurances pay out on your ability not to return back to work.

The main conditions that Trauma insurance covers are Heart attack, Cancer, Stroke, Major organ failure as well as offering partial benefits on minor claims. The benefit is used to get you back to the financial position you were before being diagnosed and the coverage amount can take into account the following:

  • Rehabilitation costs
  • Specialist treatment not covered by your Health Insurer
  • Income replacement or 25% shortfall with Income Protection
  • Ongoing expenses related therapy or adjustments to house etc.

Total and Permanent Disability Insurance

This benefit will cover the life insured for a lump sum benefit if they become permanently disable and are unable to return back to work. The lump sum benefit will aloe to cover the costs associated with continuing you and your family’s lifestyle and can be about the same coverage amount as your life cover to take into account debt repayments, rehabilitation costs, living expenses etc.

Each insurer has very different policy wording so it is best to ensure you know what arrangements you are under to not get caught out when making a claim.

Business Expense or Key Person Insurance

This insurance is more targeted towards the self-employed and business owners who want to cover the ongoing expenses in the business if they cannot work due to sickness or injury(Business Expenses Insurance). Key person insurance covers the key person in the business that may become incapacitated and their contribution to the business was uniquely valuable based on a number of factors such as sales, knowledge, experience. The expenses that these insurances cover are usually fixed and are determined by the size of the business and contribution of the person that is to be insured.

All these insurances work  hand in hand and your current circumstances and needs will dictate what is appropriate. It is important to review your insurances whenever your circumstances do change to ensure your or your family are not left in a vulnerable position.

If you would like to understand more about your insurance options and organise a quote or further chat please contact me directly on 0434 502 079 or email ronald.pratap@rpwealthmanagement.com.au

Ronald Pratap

Principal Financial Planner at RP Wealth Management | Financial Planning l SMSF I Insurance l Property Advisory. Our purpose is to provide our clients with sound advice and direction to assist with their financial affairs and help them make the best choices in achieving what is important to them.

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Ronald is a great person to deal with...explains everything very clearly and goes through all your options...looks out only for his client not any personal gain..I feel confidence that my wealth management and finances are handled correctly with his guidance
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07:57 24 Sep 19
Ron and his team have a wealth of knowledge in the industry and have referred relatives and clients, whom have been satisfied with his service to ensure that they are adequately protected.
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08:08 16 Jul 18
Very professional and consistent in his work with truckloads of knowledge in his industry. He helped me with my life insurance and did a fantastic job from start to finish. Walking me through the entire process and always following me up. I would not hesitate for a second to recommend Ronald’s services to anyone. Great guy. Great professional. Great service.
Caterina Romeo
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01:07 18 Apr 18
I met Ronald in a professional capacity, and his willingness to share his insights and his enthusiasm for the work that he does clearly shines through. I'd highly recommend connecting with him if you're looking for an adviser who holds great integrity in the way they support their clients.
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Dragan Jelic
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01:25 27 Oct 17
Ronald is great communicator and very knowledgable with his financial advise. He helped my wife and I structure a better protection plan covering life insurance, trauma cover and income protection. Easy to discuss any questions we had and generally very helpful. I highly recommend talking with Ron!
James Newman
James Newman
03:38 25 Sep 17
Ronald is a really easy going guy to deal with. He will go above and beyond to ensure he finds out all the details and gets you the best cover for your circumstances. Ronald made the process of getting Trauma Insurance and Life Insurance very easy - much easier than I thought and it was surprisingly cheaper than I thought it would be too. I really recommend you see RP Wealth Management.
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I needed general financial advice and he delivered with the lingo I easily understood. Friendly guy and always approachable. Would highly recommend him to anyone!
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A hard working and diligent professional, Ronald certainly places his clients needs first in all situations. Keep up the good work!
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