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