13 Dec What Is Personal Insurance?
Personal insurance is not a one-size-fits-all thing – there are different packages for you and your family that will match different situations in your life.
It is likely that you have once checked some insurance policies and providers when you want to get life insurance. In your search, I am sure you must have come across just too many insurance providers all over Australia.
Yet, it is surprising, on the flip side, to know that among the developed nations, Australia ranks as one of the countries that are most uninsured.
One of the crucial steps to making the right choice about your personal insurance cover is to start by understanding each insurance policy and what it offers.
Note this article is a bit “techy” and summarising the complex world of personal insurance in a thousand words is not possible. This article does not cover issues like ownership, cost of cover, estate planning, tax considerations and the impact that personal insurance can have on your super.
I have also not discussed why you need personal insurance cover. If you want to know why I strongly recommend you read “The Only Logical Reason You Do Not Need Personal Insurances”
I would strongly recommend speaking to a financial planner to ensure you get the right Plan B in place for your particular circumstances.
Different Types of Personal Insurance
While there are several insurance policies and plan in the industry, they can be easily categorised into five major types:
- Life Insurance
- Total and Permanent Disability
- Income Protection
- Trauma Insurance (Critical Illness)
- Child Cover
All these plans come with their unique features, but they all tend towards the same purpose of providing peace of mind and protection to you and the members of your family.
Let’s take a closer look into each of these four types of personal insurance.
Perhaps, this was the first form of insurance that was available in the market. It was introduced to cover you for death.
When you die, this type of insurance pays a lump sum benefit to your beneficiaries. Think of it like your “legacy” to your family.
Here is a list of other things that life insurance can also do:
- Ensures your family has a debt free house
- Fund the costs of your children’s future school fees
- Pays for the funeral costs that your family incur
- Provides an income for your spouse, while looking for a paid employment
- Covers other extra expenses that your family might have.
Total and Permanent Disability Insurance (TPD)
This insurance protects you in the event you have an illness, sustained an injury or involved in an accident that resulted in total and permanent disability. A lump sum is paid out to cover discretionary expenditure.
This type of insurance can help you in these ways:
- It helps to offset expenses as a result of the disability, for example, nursing care
- This insurance saves you from financial and emotional stress your family could go through due to your disability
- It gives you an alternative source of income if your partner had to quit work to take care of you
In a situation that you had to stop working due to injury or illness, income protection will ensure you receive an ongoing income to fund your ongoing expenses.
The benefit that you get paid can be up to 75% of your gross monthly income. The main purpose of this insurance package is to help you to look after the most important thing – your quick recovery.
Note that income protection is generally tax deductible if held in your personal name, but payments paid are taxed (regardless if held in super or in your personal name).
The income protection insurance help in more ways such as:
- It helps to take care of your daily expenses, pays incurred maintenance costs and rent, then also settles mortgage and debt repayments.
- You will be able to maintain your household lifestyle.
Critical Illness Insurance (also known as Trauma insurance)
If you are diagnosed with a critical illness, for instance, cancer, heart attack or stroke, the critical illness pays out a lump sum benefit.
Critical illness insurance (also called Trauma insurance) is structured in a way that to give you money when you have the most need for it.
Some of the other advantages of Critical Illness Insurance include:
- Payment for medical rehabilitation and medical equipment
- It helps to pay for medical bills and other expenses without causing extra financial stress to your family members
- It gives you and your spouse an option to stop your job, in case you need extra attention
Trauma insurance is the most expensive cover in comparison to the other personal insurance covers. In addition, trauma cover must be held in your personal name – it cannot be held in super.
However, it is also the cover that is claimed the most. This cover is important so you don’t have to worry about their financial situation should they become unwell, they only have to worry about getting better.
Be aware that the definition of critical illness is different for each insurance provider, and it is ideal to understand what each package cover or doesn’t cover.
We have talked about cover for you, but what happens if something happens to your children?
As I write this article, I received a phone call from a colleague whose client’s two year old child has been diagnosed with leukemia and has been rushed from Sydney to the Royal Children’s Hospital in Melbourne. We don’t know if the client has child cover or not.
Child cover is a “basic trauma policy” which provides a lump sum payment if something serious was to occur to your child’s health. A $100,000 lump sum payment will set you back $10-$15 per month, which I personally believe makes it mandatory cover for any parents with children over the age of two (child cover is not available for children under two).
As you can see each personal insurance cover has its own advantages and disadvantages. However, put them all together and you will ensure that you and your family are comprehensively covered.
If this is a topic that you would like to discuss in more detail, please go to www.MasterYourMoneyNow.com.au/getstarted to book in your complimentary 30 minute strategy session.
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Disclaimer: This information is general information only. You should consider the appropriateness of this information with regards to your objectives, financial situation and needs. Past performance does not guarantee future returns.
Chris Carlin is an Authorised Representative (No. 1235031 for financial services and No. 514748 for credit) and Master Your Money Now Pty Ltd ABN 65 627 229 681 is a Corporate Authorised Representative (No. 1265677 for financial services and No. 514747 for credit) of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523