Life insurance – what are my options?
Protecting your assets is a very important part of your financial plan.
If you or your partner have an accident or become ill your future plans and life trajectory can be derailed if you are not protected financially.
Why insurance is vital
Even with a savings buffer to protect you, this can run out over time if your expenses are more than anticipated or go on for longer than you’d saved for. If you have lost an income, you might never be able to get back on track.
This is where insurance plays an important role. It can be expensive but as explained in the Joy of Money (written by Kate McCallum and myself), the best result from insurance is to find you never need to claim. But if you do, the worst outcome is not having the right insurance in place.
There are a number of ways to source insurance – through your superannuation or direct via an insurance fund.
Insurance through your super is the cheapest way of obtaining insurance and your premiums can be deducted from your super so you don’t feel it. One thing to watch out for is that insurance is often allocated to you by default, so it’s important to review the types of cover to ensure that the mix and amounts are right for you. For example, you might have life insurance which will help your dependents after your death, but if you suffer a major injury or illness, will it help you financially?
A financial planner can give you a lot of help with insurance.
Different types of insurance
Insurance is intended to cover you for a wide range of life challenges.
Life insurance is a little bit of a misnomer – it’s really insurance for when you die. It is paid to your nominated beneficiary, often a partner or children, to cover your debts and provide for them when you’re gone.
As a rule of thumb, the amount of life insurance you will be seeking will at least cover debts.
If you are married with children and have a mortgage with your spouse, life insurance is intended to help your spouse continue to live in the house, help raise children, cover school fees etc. – depending on the level of cover you have.
Total and permanent disability (TPD) is designed to help pay for medical help and loss of income if you are no longer able to work. Like any insurance cover, it’s important with all insurance to understand the definitions and what you are paying for. Some policies will cover you if you can’t work in your current job role during your disability (‘Own occupation’); others will require you to be unable to do any work (‘Any occupation’). Cover for the former will be more expensive, as the likelihood of a claim being approved is higher, so many people opt for the ‘any’ definition.
If you have a serious or prolonged injury that stops you working for a period of time, income protection insurance is intended to replace most of your income for a certain length of time. Typically, these policies will cover 75% of your income and will be either for a two-year period or until 65. Again, many people opt for the two-year time frame because it is much cheaper.
Critical illness or trauma insurance covers a critical illness that requires medical intervention, such as cancer, heart attack or stroke. This insurance pays a lump sum to help you meet expenses during the period you’re sick and when you’re recovering.
How policies work
Some insurance policies require you to be individually underwritten by the insurance company. This means reporting your comprehensive medical history and undergoing medical tests. From here your insurance may come with disclaimers for certain conditions and/or loadings on the policy.
It is also important to read the policy careful to see if there are any relevant exceptions that you might not be comfortable accepting.
Insurance is a complex area to navigate but there are specialist insurance advisers that can help you choose the right policies. Alternatively, you can find an insurance broker who can often be referred by your planner.
When it comes to claiming on your insurance, it can be highly beneficial to have a financial adviser acting on your behalf to communicate with your insurance company.
In many cases, they are able to secure payments more quickly and more effectively than you or your family member trying to negotiate the policy at the same time as recovering from the event.
Source:
https://moneyandlife.com.au/insurance/life-insurance-what-are-my-options/
