Insurance - Stop exposing yourself
Quite often, Australian’s have the perception that insurers are always looking ways to escape paying out on claims. However, in 2016 alone insurance providers paid out over $9 billion in claims, $3 billion more than the previous year and was the 11th straight year of increased claims (riskinfo.com.au). That figure equates to over 60% of total premiums dollars paid back to the insured….
In addition to that, in their industry-wide review last year, ASIC found just over 90% of claims were paid in the first instance. The small fraction of claims that were disputed primarily due to a lack of evidence supplied to insurers about the claims (On a side note, in the same review, ASIC also found claims were more readily paid to policies sold through advisers, as distinct from those sold direct to consumers with no financial advice… Just saying!).
So now we’ve established that insurers do pay when needed, let’s look at the different sorts of cover…
To be honest, this is more for your family, than for you. Life insurance pays your beneficiaries on the event of your death (or in some cases terminal diagnosis), be it from accident or illness.
It is usually paid as a lump sum and can be used to settle debt, outstanding loans or other financial costs including the future family cost of living. Think of it as paying off the mortgage, clearing your family from all debt and perhaps setting them up a little for the future too when you are not able to. The premium can sometimes be paid out of your superannuation or as pre-tax payment, depending on your tax or business set up.
Tip: You’ll want to consider life insurance if you have a partner or children, or you have a mortgage or any other personal debt or your family would be financially disadvantaged if you weren’t around.
This stands for the not-very-nice-sounding Total Permanent Disability (hence why it's referred to as TPD). It can be paid out of your super in some cases. It covers you, as the name suggests, where you have been totally and permanently disabled, unable to perform the job you had been doing or the life you’ve been living.
At last count, the average cost of part time care in the event of being TPD is approx. $39,000 per annum – this is huge cost if something was to happen to yourself, or a family member – whether you are working or not.
Tip: You’ll want to consider TPD if you have a partner or children, or you have a mortgage or any other personal debt or you wouldn’t have enough savings to cover catastrophic and unexpected expenses.
No one wants to survive a life-threatening illness, only to be crippled by it financially. When a serious health crisis such as heart attack, stroke or cancer occur (there are about 40-50 different illnesses covered under trauma), this type of cover ensures you and your family are able to survive financially. Trauma is paid out on diagnosis of illness and does not matter if you are working or not.
Tip: Trauma cover should be on everyone’s to get list – whether you are a working or non working spouse, the costs cant be very significant. Unlike income protection, trauma is paid on diagnosis
Income Protection does just that - protects your income and pays you a monthly ‘wage’ when you can’t work temporarily due to sickness or injury.
Predominately, income protection is designed to cover your basic cost of living including home loan repayments / rent, groceries and other utilities. Typically speaking, income protection covers you for 75-80% of your wage on a monthly basis while you are off work
Tip: If you are producing an income and couldn’t get by if you didn’t have that income, then income protection is a must. Whether you have debt or no debt, income protection is the first cover you should consider
Insurance for your significant other
Your spouse is invaluable either as a second wage earner or doing the multitude of (often unpaid) work that keeps everyone in the family together. Even if you are the principal earner, you might want to consider insurance for your partner. This might be Life, TPD and/or trauma insurance.
Too many Australians are underinsured and exposing themselves to a huge amount of risk when things go wrong. This under-insurance pay gap is especially true if you are between the ages of 30 - 54, through which time insurance needs can drastically increase or decrease. Speak with Scott Glen Financial Advisers to ensure you have the best insurance cover for your needs.