Personal insurance advice to help protect you and your family.

• Personal insurance acts as a lifeline for you and your loved ones if an illness or accident occurs.
• Life insurance, income protection, critical illness and total and permanent disability (TPD) cover should form part of your considerations.
• A full assessment of your financial commitments and the needs of dependents is necessary before deciding cover levels.

Most people prefer not to think about the prospect of becoming ill, being unable to work, or dying.

Planning for such worst-case scenarios is important, however, to ensure you and your family have financial and health safeguards in place. This is where various forms of personal insurance can provide peace of mind.

The following provides a brief guide to three key types of cover. Insurance can be complicated, so to ensure you get appropriate insurance for your needs, it is wise to seek the assistance of an insurance specialist or financial adviser before signing up.

Of course, personal insurance is often available within your superannuation fund membership, (subject to terms and conditions). However, there are pros and cons in having your insurance within your superannuation. A financial adviser can help you understand the differences and help you to decide if it is better for you and your family to have your insurance inside or outside of your super. 

Life cover is a core element of any financial plan, providing a lump-sum payment to beneficiaries if a policyholder dies. The key benefit is that it can ensure that family members and loved ones are supported financially in the event of your death. Having such cover is especially important if you have a mortgage or other significant debts that could be passed on to surviving family members.

The big decisions with life cover include determining the sum insured, weighing up premium affordability and deciding on the policy duration. A financial adviser is valuable during this phase and can help you determine the financial needs and obligations of any dependents. They can assess your current financial situation and design insurance cover that matches your needs.

As a guide, Moneysmart.gov.au also offers a life insurance calculator that can help you work out the right level of cover for you and your family. 

When a life insurance policy is paid out, it generally goes to a nominated beneficiary such as your spouse, partner, children or other dependents. If a beneficiary is not named in the policy, the life insurance proceeds usually become part of your estate.

TPD delivers a lump-sum payment if the policyholder becomes totally and permanently disabled because of an accident, illness or other life-altering events and is unable to work.

As such, it is a crucial safety net for individuals and families if their source of income suddenly dries up.

Choosing the right form of TPD may be confusing as definitions can vary between insurers. Some policies may include ‘own occupation’ definitions, which covers a person who cannot work in their specific occupation, while others may have ‘any occupation’ policies, which offer cover if a person cannot work in any job for which they are reasonably qualified.

When considering the level of TPD cover, common elements to consider include:

• medical and rehabilitation costs
• living expenses for you and your family
• repaying debts such as a home loan or credit cards.

Critical illness insurance, also known as trauma insurance, is a type of insurance coverage that provides a lump sum payment if the insured person is diagnosed with a specified critical illness or medical condition. In Australia, critical illness insurance is designed to provide financial support to individuals and their families during a difficult time when they are dealing with a serious illness.

The specific critical illnesses covered by insurance policies may vary among different insurers, but common conditions typically include cancer, heart attack, stroke, organ transplant, kidney failure, and major surgeries. It is important to carefully review the policy terms and conditions to understand the specific illnesses covered.

To receive a payout from a critical illness insurance policy, the insured person must meet the criteria outlined in the policy. Generally, the following conditions must be met:

• Diagnosis of a covered critical illness
• Survival period
• Waiting period
• Policy exclusions

When a valid claim is made and all the necessary criteria are met, the insurer will pay out a lump sum amount as specified in the policy. This lump sum payment can be used by the insured person to cover medical expenses, ongoing treatment costs, rehabilitation, mortgage or rent payments, household bills, or any other financial obligations.

It is important to note that each insurance policy may have different terms and conditions, so it is crucial to carefully review the policy documents and seek professional advice to ensure that the coverage meets your specific needs and circumstances.

Income protection is designed to secure one of your biggest assets – your salary or wages.

Unlike TPD insurance, which pays a lump sum, income protection provides ongoing payments to cover a portion of the policyholder’s lost income during the period in which they cannot work.

Some of the biggest factors to think about include the waiting period before benefits kick in, how long the benefits will be paid, and the level of coverage, which is usually a percentage of your monthly income. Most insurers allow you to choose a sum insured worth up to 70 per cent of your before-tax income, excluding superannuation contributions.

These choices can affect the price of the cover. Typically, shorter waiting periods and longer benefit periods will result in more expensive premiums. 

While each type of personal insurance covers a specific scenario, they are often complementary and together they can deliver comprehensive financial protection.

When choosing life, TPD and income protection cover, it is important to assess your individual circumstances, including any financial commitments, the needs of dependents and your desired lifestyle. You should review all policies periodically to reflect significant life events such as marriage, childbirth, or job changes.

A financial adviser can help you get the appropriate balance of insurance cover and provide clarity for you and your family.

Providing personal insurance advice requires specialist skills. For an initial consultation with a Mercer Financial Adviser, contact us via the contact form below.