WHAT IS LIFE INSURANCE?

Once, life insurance used to be just death cover but now the sector has expanded to include protection from other risks that some consider are even more important than death cover. These are trauma insurance, total and permanent disablement (TPD) and income protection.

Just as you insure your house and car against the chance of damage or destruction, leaving you unable to foot the replacement bill, the risk of you having an accident or being diagnosed with a serious illness during your lifetime is pretty high. A serious illness or accident may mean many months off work, drastically reducing the amount of money coming in. This is further exacerbated by a partner taking time off work to act as a carer. That’s why it’s worth investigating the different cover options with a licensed financial planner.

Here’s a brief rundown on the types of risk insurance available that come under the umbrella of life insurance:

1. TERM LIFE INSURANCE: This is death cover which provides a lump sum payout of money on death or on diagnosis of a terminal illness that will end in death within 12 months.

PURPOSE: Eliminates likely financial hardship after the death of a spouse, particularly the breadwinner. Pays outstanding debts, such as mortgage, and leaves a lump sum to be invested to cover the cost of future family needs such as children’s education.

2. TRAUMA INSURANCE: Provides a lump sum of money to assist you if you happen to be diagnosed with any of the defined events in the policy such as cancer, heart attack, stroke.

PURPOSE: Eliminates financial hardship so you can concentrate fully on recuperating and making the necessary lifestyle changes. The money can be used to pay debts, medical costs and a lump sum to cover lifestyle changes, e.g. wheelchair access to be built at home.

3. TPD – Total and Permanent Disablement: Provides a lump sum of money if an accident or sickness leaves you unable to work either in your own or any other occupation again. While not working, TPD can cover you if an accident or sickness, e.g. paraplegia or depression, results in you not being able to live without assistance.

PURPOSE: Eliminates financial hardship in the wake of being unable to work again. The money pays debts and leaves a lump sum to replace income. Provides financial assistance to ensure your needs are taken care of and your family continues to maintain their existing lifestyle.

4. PACKAGED LIFE INSURANCE: The three insurance products listed above – Term Life, Trauma and TPD – are sold separately but they can be packaged together in one policy with one company.

PURPOSE: Cover is provided for each event. This option is generally more affordable than purchasing the three products individually.

5. INCOME PROTECTION: This cover provides a regular payment, generally per month in arrears. It will replace 75% of your usual monthly income when you are off work due to accident or sickness. Premiums paid are generally tax deductible, whilst any claim benefit received is income tax assessable.

PURPOSE: To eliminate hardship and protect your family’s lifestyle by providing a replacement income should an accident or sickness strike the breadwinner.

Life Insurance ...