Whilst we all wish for a long and fulfilling life and the ability to watch our children and grandchildren grow and become successful in their own right. Unfortunately there is always a risk that we may pass away prematurely.
An event such as this may result in the ones we leave behind being unable to provide for themselves while maintaining the household and servicing any debts.
Life insurance can help to ensure those left behind can continue to lead the lifestyle they have become accustomed to, without the financial hardship that may otherwise be experienced.
In the event of your untimely death, Life Insurance will payout a lump sum that can be used however the beneficiary sees fit. This may include servicing debts (including funeral expenses), standard bill repayments and investing an amount which will provide an ongoing income to provide for everyday living and education expenses.
It can give your loved ones the ability to grieve without having to worry about financial concerns.
Total and Permanent Disability Insurance
How would your life be affected if you were to suffer an injury or illness that resulted in you never being able to work again? For most Australians it would result in financial ruin.
Centrelink benefits may be available, but paying a mortgage and raising a family on this income would be impossible. Private school fees would certainly be out of the question. Depending on the situation, funds may also be required for modifications to your home and vehicle to accommodate your changing needs.
The sale of disposable assets, along with savings and credit cards may keep you going for a while, but this is not a sustainable strategy, and would leave a huge dent in your financial goals.
This is where TPD Insurance comes in, TPD pays out a lump sum amount in the event the life insured becomes totally and permanently disabled, and unable to perform your own occupation, or any other occupation to which you may be suited by experience or education (depending on the policy definition).
Options available with TPD
In addition to selecting the right level of cover with the right insurer, the other big decision to be made is the definition type. There are generally two definitions available with TPD, ‘any occupation’ and ‘own occupation’.
Own Occupation TPD will pay a lump sum in the event that you are unable to work ever again in your own or normal occupation.
Any Occupation TPD will pay a lump sum in the event that you are unable to work ever again in any occupation for which you are reasonably suited by education, training or experience.
Selecting the right options on your TPD insurance is vital, and therefore the expert advice of a financial planner should always be sought before taking out a policy.
Trauma Insurance / Critical Illness Insurance
There are very few Australians who haven’t been touched by a critical illness event, be it personally or via a friend or family member.
Common critical illnesses and events include cancer, stroke and heart attack. As we get older, the chances for ourselves and our loved ones increase. With modern medical developments, many sufferers will make a full or partial recovery. Unfortunately, their financial situation may not enjoy the same recovery. Even with Private Health cover the cost of medical care can be financially crippling.
Such events may require a year or more away from work, which for many Australians would mean severe financial hardship, right at the time they need it least.
Trauma Insurance, also known as Critical Illness Insurance, can provide you with a lump sum payment to be used however you see fit. Funds may be used to reduce or extinguish debt, to replace income and to fund costly medical expenses that may not be fully covered by private health insurance.
Trauma Insurance allows you to concentrate on your recovery, without having to struggle back to work or worry about financial matters.
Income Protection Insurance
When you sit down and look at your personal assets you might consider your home or maybe your car among the most important Assets you have. You would be incorrect in this assumption as you and more specifically your income is the single most important asset you have.
If you were unable to earn a living due to illness or injury for a few days or a few weeks, you may have sufficient sick leave at work to cover yourself. If it was a little longer, you may have sufficient savings to get you through. But what if it was a few months or a year? What if it was many years or a decade or more? If you are lucky, you may have disposable assets to sell, but that could leave a huge dent in reaching your financial goals.
For the average Australian, being unable to earn an income for a sustained period of time will quickly result in financial pain, and in the worst case, possible bankruptcy.
Income Protection insurance is a cost effective – and tax deductible – way of protecting yourself. Income Protection will pay up to 75% of your pre-claim income for a period of time determined by the type of policy you have.
In the unfortunate event of injury or illness affecting your ability to work, instead of worrying how you will meet the next mortgage repayment, you can rely on your income protection policy and concentrate on your recovery whilst knowing that your financial goals and aspirations are still on track.
There are a number of variables you can choose from when establishing an income protection policy, and many of these will affect the premium you pay.
◊ Waiting period, how long can you be out of work before you start to suffer financially. Waiting periods of 14 or 30 days are standard as most people don’t have sick leave or annual leave entitlements for longer then this time period.
◊ Benefit period, how long will you need to be protected for? The maximum is to age 65 but periods of 2 to 5 years or age 60 are also available and depending on the selection your premium can increase on decrease.
◊ Benefit type, there are two benefit types available, agreed cover (also known as guaranteed) and indemnity cover. With an agreed policy, you must provide evidence of your income at the time of applying for cover, and you will then be guaranteed to receive that amount in the event of a claim, even if your actual income has declined since the insurance was taken out. The second option is indemnity, which is a cheaper form of cover that will only pay up to 75% of your income immediately prior to the claim being made, even if the amount of cover on your policy is higher.
Juggling options such as the waiting period, benefit period and benefit type can be difficult, especially when combined with trying to select the right amount of cover with the company that best suits you. A qualified financial planner has the experience and knowledge to tailor a protection package that best suits your needs and objectives, as well as your budget.
Running your own business can be one of the most rewarding – but challenging – things you will do in your life. Whilst it can be challenging during the best of times, imagine trying to run your business from a hospital bed. How long could your business survive without you?
Thankfully there are a number of different insurances available to help you, your family and your business in the event that you are unable to work due to injury or illness.
Business Expense Insurance
Business expense insurance will pay a monthly benefit in the event that you are unable to work due to injury or illness. The benefit can be used to cover your business expenses such as rent, equipment leasing and even staff wages. This type of insurance can help to ensure your business remains viable while you concentrate on your recovery, ensuring you still have a healthy business to return to.
Key Person Insurance
Does your business have one or more staff members upon whom your business heavily relies on? If one of these people where to find themselves unable to work due to injury or illness (or even death), would you be able to cover the shortfall in income, in addition to having the available capital for rehiring and retraining costs?
Key person insurance will pay a lump sum benefit in the event that one of your key staff are unable to work due to injury, illness or death. The proceeds can be used to replace lost revenue, as well as covering the cost of hiring a replacement and providing their training etc.