Why do I need personal insurance?
Protect your financial security with your superannuation’s life insurance
Nobody wants to think about leaving this world and leaving their loved ones behind. We also don’t want to think about the possibility of being involved in an accident and sustaining lifelong injuries or a disability. But the reality is – nobody lives forever (at least, not in our lifetime!) and humans aren’t invincible.
Do you know what would happen if you were unable to work and provide an income for your family?
Yes, it’s an uncomfortable topic. But it’s important to think about personal insurance now, while you’re fit and healthy. Now is the time to consider the impacts on your partner and kids if something was to happen to you.
Could your partner afford to pay the bills and/or mortgage, children’s schooling fees, etc on a sole income?
As mentioned in our previous blog , insurance is one of the key features of your superannuation. So today’s blog will highlight what personal insurance is and why you need it.
What is Personal Insurance?
Personal Insurance is a type of cover that provides financial security for both you and your family in the event of a serious injury or illness, loss of ability to earn, total and permanent disablement, or death.
Why do I need insurance?
Every year, many Australian families are affected by a serious illness or injury, or untimely death. Naturally, our first thoughts are of the emotional impact of these events. However, the financial consequences can also be devastating.
Having personal insurance can go a long way in helping you and your family meet your basic living expenses. This includes your mortgage, groceries, school fees, and petrol.
Depending on your situation, your family may also need to cover significant medical expenses, rehabilitation, modifications to your home to maintain your lifestyle.
What are the chances of needing insurance?
You may be (fairly) young and healthy and think you have a low risk of needing personal insurance. But the statistics tell another story.
According to recent research conducted by Financial Services Council (FSC) in conjunction with KPMG, the life industry paid out benefits of $4.9 billion of disability income claims for policies through financial advisers in 2014 – 2018.
This was double the average annual payment level of the preceding five-year period.
The most common cause for making a disability income claim was due to accidents (38%), musculoskeletal (18%), mental disorders (11%) and cancer (10%).
Total claims benefits for mental health conditions have more than doubled in the past five years. This is because more people are now focusing on their mental well-being and take longer to return to work after impactful events.
You and your partner mightn’t become one of these statistics. But you can never know for sure.
Approximately one in five Australia families will suffer an unforeseen event that will leave them incapable of working e.g. a death of a parent, injury or an illness2
What type of personal insurances are available?
There are 3 types of personal insurance included in your super. These are life, total and permanent disability (TPD) and income protection/salary continuance insurance.
Let’s have a look at each of these in more detail.
Life insurance can help support your dependents to maintain their existing living standards or pay off any debts.
Also referred to as Life Cover or Death Cover, this insurance provides a lump sum or income stream to your partner or loved ones when you die or are diagnosed with a terminal illness. (With a life expectancy of 12 months or less)
Total and Permanent Disability TPD Insurance
Total and Permanent Disability (TPD) insurance gives you financial freedom if you were to obtain a permanent disability due to illness or injury.
You will be paid a lump sum to ease the stress of the situation and provided financial support to fall upon in your new condition. This includes covering significant medical expenses, rehabilitation, and required modifications to your home.
Each insurer has a different definition of what it means to be ‘totally and permanently’ disabled. It can cover you for either:
- Your own occupation - You’re unable to return to work in the same capacity as before your disability. This cover is more expensive and usually only available outside super.
- Any occupation - You’re unable to ever work again in any job suited to your education, training, or experience. This is cheaper than ‘own occupation’, but has a higher claim threshold – so it’s less likely to pay out.
Income Protection / Salary Continuance Insurance
Income protection insurance pays up to 85% of your pre-tax monthly income for a set period if you’re unable to work due to partial or total disability.
Every income protection policy has its own definition of ‘partial or total disability’, so this needs to be checked before a claim is made.
This type of insurance is provided as either an:
- Indemnity value policy - You’re insured for a certain percentage of your salary when you make a claim. If your salary has decreased since you initially bought the policy, you’ll receive a smaller monthly insurance payment. These policies are generally cheaper and are suitable for those with a stable income.
- Agreed value policy - You’re insured for a percentage of an agreed amount when you sign up for the policy. It’s generally more expensive, but can be useful if you have income that changes from year-to-year. *Note that agreed value policies are no longer available for new clients/business
Choosing the right type and right amount of insurance can help ensure if anything were to happen, you and your loved ones would be looked after financially.
But remember, as your life changes so do your insurance needs. Holding onto a mortgage, having children, and getting married are all factors that increase your financial responsibilities. So you need to review your cover as your situation changes.
If you’d like a review of your current insurances, feel free to reach out to a financial advisor at Creo Wealth.
Important Information: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.