People often don’t think twice about insuring their motor vehicle, or their house and contents, but do not contemplate what the financial consequences of not insuring the loss of earning capacity through illness or accident, or the death of a loved one. Any wealth accumulation strategy can easily be derailed by the loss of a loved one, illness or injury, so it is important to consider the consequences of not insuring for these events.
There are 4 main types of personal risk insurance:
- Term Life Insurance – provides for a lump sum payment in the event of death for a specified period of time. Most commonly, Term life cover is taken out to payout debts, and to provide capital for the surviving partner to maintain a level of income for themselves and/or dependents.
- Total and Permanent Disability Insurance – provides for the payment of a lump sum in the event of Total and Permanent Disability. The definition of what constitutes Total and Permanent Disability can vary between insurers but there 2 main definitions in the marketplace. The “Any Occupation” definition requires that the insured person be (after an initial qualifying period of 3 or 6 months) unlikely to ever work again in any occupation. The “Own occupation” is similar but it only requires that the insured is not able to work in the area that they have been specifically trained.
- Income Protection Insurance – provides replacement income protection insurance, in the event of illness or injury, up to a maximum of 75% of pre-disability income. Benefits are paid after serving a waiting period, up to a specified period of time or until the insured is able to return to work. There are variations in the definitions of Total and Partial Disablement in the marketplace.
- Trauma/Crisis Insurance – provides for a lump sum payment in the event the insured is diagnosed with a range of illnesses, typically they would be conditions such as heart attacks, stroke, and cancer. Usually there is a waiting period attached to claiming on a range of illnesses specified in these policies and also there are variations across insurers as to what constitutes an insurable event.
Insurance policies can be held through superannuation or held personally. Furthermore, within superannuation the cover can be arranged on a “group” basis or an individual basis. “Group” cover is usually provided automatically up to a certain level of cover (based on age) without the need for medical underwriting. Whereas, personal/retail cover is much more flexible with better policy features and requires medical underwriting.
Manifest Financial Wealth can help you to identify the areas of greatest risk (and financial loss) in regards to your well-being and develop personal risk strategies and product recommendations which are within your budgetary constraints.