No one likes to think that something might happen to our health or our family’s health. The consequences are too significant. But it is always best to be prepare for the unexpected, as the fact is, it is a case of when.
“In this world, nothing is certain except death and taxes.” Benjamin Franklin
If you don’t prepare, you run the risk of becoming one of the many not having adequate provisions for unexpected death or illness, and leaving you and/or your loved ones in severe financial strain.
Some risks are simply unavoidable, but perhaps surprisingly, the ramifications of these risks can be reduced or mitigated entirely. It is therefore vital to assess and address these risks.
This is done via a personal insurance plan. Also known as a plan B.
What is personal Insurance?
Personal insurance provides a range of financial security to you and your family in the event of death, serious injury or illness resulting in total and permanent disablement or the loss of your ability to earn an income.
Understanding the nature of each type of personal insurance will help in identifying how much you and/or your loved ones need. We have therefore outlined them, to provide a better understand of the types of personal insurance.
A financial adviser can help you ensure you have the right insurances in place to help protect your family’s circumstances and goals.
Types of personal insurance
There are hundreds of variations of insurance polices available in the market. They can be classified into four core types including: life insurance, income protection, trauma insurance, and total and permanent disability (TPB) insurance.
Life insurance is the most common type of personal insurance, with its main purpose being to cover you in case of death. In simple terms, in the case of death life insurance provides a lump sum amount to a beneficiary. Acquiring life insurance will give you peace of mind, knowing that your loved ones are financially protected in the unfortunate event of your death.
What can life insurance be used for:
Pay for funeral expenses
Pay off mortgage and other financial obligations that have been left behind
Take care of your estate planning needs
Providing funds to generate an income for loved ones to keep themselves or a business afloat
Pay for other specific expenses your family might need e.g. kids’ education costs
Total & Permanent Disability Insurance
Also known as TPD, this your financial back-up plan if you suffer an illness or injury, which totally and permanently prevents you from working again. While income protection provides a ongoing replacement of income if you’re unable to work due to illness or injury.
TPD insurance comes in a form of a lump sum payment. This can help you to set yourself up for the long term financial consequences, reduce debt commitments and meet initial and ongoing incurred medical expenses.
There are two main types of TPD insurance:
- Any occupation – when you can no longer work in any job suited to by your education, training, or experience.
- Own occupation – when you can no longer work in your current job
Trauma insurance, also known as critical Illness or crisis recovery insurance, provides a lump sum benefit if the insured suffers a ‘critical condition’ as defined by the insurance provider. It’s primarily used to help you recover financially from a trauma/crisis event, such as a heart attack, stroke, cancer, or other life-threatening illnesses
Trauma insurance can cover costs associated with:
Medical expense costs
Replacement of wage e.g. time off work for the life insured (if no income protection) or spouse at the time of crisis
Funding of specialised medical treatment overseas
Income protection (also known as salary continuance) is designed to provide a regular income if you are unable to work due to sickness or injury. Generally, income protection provides a regular income during a period of disablement for up to a predetermined and benefit period.
The benefit amount payable is generally between 75% – 85% of your employment income. For example; if you earn $5,000 a month, then your potential replacement earnings will be capped at around $3,750 – $4,250 a month. As well as limiting the payout amount, the income protection insurance also limits the length of time you can receive the payouts.
Usually, the maximum is either 2 or 5 years. This all depends on the type of insurance you take out. While income protection is especially designed, so that you can focus on the most important thing, which is your fast recovery to better health.
Income protection can be used for the following benefits:
- Help meet all your daily living expenses such as paying the bills or putting food on the table.
- Assists meet the rent or the mortgage obligations
Factors to consider when looking at cover needs:
- Make sure you have an adequate level of cover for all your needs. Under-insuring can present a serious problem at the least ideal time.
- Changes in your personal circumstances can lead to a need to alter insurance levels (e.g. taking on additional debt, salary changes).
- Ensure you nominate your beneficiary and make changes as your circumstances change.
- There may be taxation applicable to the proceeds, leaving you / your loved ones with a less than expected amount.
- Workers compensation only covers work related injuries, and up to a small capped value.
Cost of insurance
The cost of insurance will depend on many factors such as your age, gender, occupation, lifestyle choices and your health. If you are a “blue collar worker”, your premiums are typically a little more than “white collar workers” because your job generally involves more risk. Comparably, women typically qualify for lower premiums because they live longer than men.
Everyone’s needs and situation is different, and the types and amounts of insurance that are appropriate for you may not be appropriate for someone else.
Therefore it is important that you have a tailored personal insurance in place to meet your individually needs. Also, as your circumstances change you review what you have in place. Visit our personal insurance page to help you prepare for the unexpected.
Speak to a financial advisor to ensure you choose the right personal insurance for you and your loved ones needs.
Take the first step today to protect yourself and your family by contacting our expert financial advisors on (02) 4088 6444 or book a free consultation
Oracle Advisory Group makes no representation or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. The information in this document is general information only and is not based on the objectives, financial situation or needs of any particular investor. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek their own professional advice. Past performance is not a reliable indicator of future performance. The information provided in the document is current as the time of publication.