Personal Insurance Basics
06/09/2018 The Hopkins Group
I’m often left perplexed after having conversations with clients around insurances, everybody is so ready to protect their cars and their houses, but not their lives and their income!
When I ask a client if they have life insurance, a lot of the time the response is something like “I have that in my superannuation fund” or “that’s standard in my super”. When I follow up with “great, how much do you have?’ or “what is the benefit period?” I get a puzzled look.
According to a 2017 report from The Association of Superannuation Funds of Australia, around 70 per cent of life insurance in Australia is held within superannuation. However, “the level of underinsurance within the Australian community remains high” with the median level of life cover meeting only 37 per cent of the needs of families with children.
Personally, I think the answer lies in education – informing clients of their options and the value of investing in risk protection – because as a Financial Adviser, I am just not comfortable making plans with your income on an ongoing basis without securing that income now.
Types of Insurance
There are three broad categories of insurance in Australia:
1. Health insurance provides payment for the provision of hospital and ancillary medical and health services.
2. General insurance covers matters not addressed by life or health insurances including home and contents, car, travel, professional indemnity and product liability.
3. Personal insurance is a type of cover that provides financial security to you and your family for events such as serious injury or illness, total and permanent disability, loss of ability to earn an income and death.
While each of these insurances have their benefits, for the purposes of this blog let’s focus on the one many people seem to forget about; personal insurance.
Personal insurances provide a level of protection against your way of living, with financial support to cover any outstanding debts or general expenses. There are four main types of personal insurance.
- Total and Permanent Disability (TPD)
- Income Protection / Salary Continuance
- Critical Illness (Trauma)
Life insurance is designed to pay out your dependents a lump sum in the event of your death and is intended to provide you with the security of knowing that if something were to happen to you, your family and loved ones would not be left with a huge financial burden.
It can be used to assist with funeral costs, mortgage repayments, providing temporary income for your loved ones and contributions to other financial obligations.
Total and Permanent Disability (TPD)
This cover is sometimes bundled or ‘linked’ with life insurance policies and is designed to provide a lump sum benefit if you are totally and permanently disabled.
Income Protection / Salary Continuance
These policies are designed purely to provide you and your family with a steady stream of income if you cannot work due to illness, injury or disability. Most insurers will insure up to 75% of your gross monthly income, providing you with the security of knowing that most of your daily expenses and financial obligations can be met while you focus on recovery.
Critical Illness (Trauma)
Critical illness insurance pays you a once off lump sum if you fall victim to a serious medical condition like a heart attack, stroke or cancer. Insurers will have a list of specific conditions that you will be able to claim a benefit from, this will vary from insurer to insurer and the level of cover that may suit you.
Generally, this is the most expensive of all personal insurances as it is the most claimed.
The aim of trauma insurance is to give you the peace of mind and provide a lump sum benefit to ease those pressures during recovery.
Inside or outside superannuation?
For certain types of insurance cover (life, TPD and income protection) you may have the ability to hold the policy inside your superannuation fund.
The main difference with holding policies inside your superannuation is that the premiums are deducted from your superannuation balance rather than your personal cash flow. There can also be some tax benefits as you pay for the cover out of your pre-tax super contributions. However the types of cover held in super can be quite limited and will understandably reduce your super balance over time.
Group or Retail Cover?
Group Insurance cover is what most superannuation funds will offer to you as ‘standard’ when you join as a member.
The main difference between group and retail life insurance policies is that group policies are provided by super funds and employers to their members or staff, whereby the super fund or the employer controls the policy. The amount of cover is generally based on your age and occupation.
On the other hand, retail policies are provided through advisers and the policy ownership is determined by you and based on tailored recommendations. They are totally customisable and are based on your individual circumstances and needs rather than a ‘one size fits all’ approach. Some of the customisations available under a retail policy are:
- Insured amount
- Premium style
- Ownership structure
- Policy structure option
- Policy additions/options
If you’re unsure about the state of your personal insurance, The Hopkins Group has a team of financial advisers that can journey with you to a place of understanding and security. Get in touch with an expert today and take control of your finances.
John Hopkins Financial Services Pty Ltd is a Corporate Authorised Representatives of WealthSure Financial Services Pty Ltd Level 1 190 Stirling Street PERTH WA 6000 ACN:130 288 578 AFSL:326450.
General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.
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