Okay, so you may not be doing any stunts like Mr Bean, but insurance should be considered for many Australians. The term ‘’insurance’’ covers a wide range of areas that can be insured, (Car, House, Health, Landlords, Contents, Life/Death, Total and Permanent Disablement (TPD), Income Protection, Trauma & Professional Indemnity to name a few!). As Financial Advisers, we tend to focus on Life, Income Protection, Trauma and TPD coverage to assist our clients in ensuring they can have a relatively stress-free life should the unthinkable happen.
But why do we need personal insurance? And what sort of life events do they cover for? Why is it so expensive? Why, Why, Why? I am often bemused at how people would not consider backing out of the driveway without having their car insured, yet baulk at insuring their greatest asset; their life and their ability to earn an income.
Let’s start from the beginning. Let’s look at what these insurance types cover us for and why we might need them.
Life Insurance (AKA Death Insurance)
This is the most self-explanatory insurance, in that if you pass away, a lump sum is paid out to your beneficiaries. This insurance is useful for eradicating debt for your surviving family members (such as the mortgage) and providing for children’s schooling and care. The use of the funds is up to the beneficiaries but is helpful in ensuring less stress after a death in the family.
Trauma Insurance (AKA Critical Illness or Crisis Cover)
This insurance is based on a specific event happening, such as a stroke, heart attack or cancer diagnosis. It pays out an agreed lump sum to assist with medical care and financial burdens that may arise due to the illness.
This cover is put in place to pay out regular income should the insured be unable to work due to illness or injury. The payments can be up to 75% of your income prior to the incident and will be paid out for a period as agreed (usually 2 years or to age 65). Waiting periods typically apply to this cover and can be a way of lowering costs. Having a regular income should you be unable to work relieves much of the financial pressure that arises due to ongoing living expenses.
Total & Permanent Disablement (TPD)
This cover is helpful should an illness or injury cease your working capabilities by paying a lump sum at claim. It can assist with making your home more suitable after the incident and also assist with funding the ongoing care needs for you and your family. The majority of TPD claims are paid out due to significant accidents (just like Mr Bean is probably going to encounter!).
The costs for insurance are varied from person to person and also in regard to the amount of cover required, occupation, the waiting periods and a number of other factors. It is best to obtain quotes from a number of sources and to look into the cover they provide (less any exclusions) before deciding on the insurance that’s right for you and your family.
Loadings can apply to your insurance premiums (this can make it a little more costly). Some examples of why a loading may apply is your smoking status, being overweight or having high blood pressure. Should your circumstances change in this area, it is best to let your insurance provider know and a re-assessment may be able to be done, resulting in lower premiums as your health improves.
To assist with the cost of insurance, some can be paid from your superannuation account, however the downside to this is an erosion of your retirement savings.
Beware of online or media advertising that promotes cheap cover by ‘just picking up the phone’. Cheaper is not always best and there are a number of significant ways that this type of cover differs from that sourced through a financial adviser.
Balancing the right amount of cover with your budget can be tricky. Speak to your financial adviser if you wish to explore your insurance options.
While you may not be performing acrobatic stunts like Mr Bean, or be an adventure hiker like me, insurance coverage is important to ensure an accident, illness or worse doesn’t negatively impact your financial situation too. We, as advisers have seen the positive effects for our clients that insurance can have in the unfortunate event of a claim. We would like to ensure that everyone has the opportunity to have high quality insurance coverage that is right for them.
Not sure if you have the right insurance coverage for your circumstances? Don’t know where to start? Contact our Advisers today to have a free no-obligation appointment regarding your insurance needs. Insurance – it’s a necessary evil, but can be money well spent to provide peace of mind.