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Insure Your Way of Life

Life can be unpredictable at times – your car breaks down, your roof springs a leak or an injury stops you from working for an extended period. Most of us insure our car and our home, but what about our most important assets, ourselves and our ability to earn an income? Personal insurance offers financial protection and peace of mind for you and your family if the unexpected happens.

 

What is Personal Insurance?

When you take out an insurance policy you choose to receive an agreed level of financial protection. In return, you pay an amount of money (called a premium) on a weekly, monthly or yearly basis.

The types of personal insurance that are best for you – and how much that insurance will cost – depend on factors such as your age, marital status, income, assets and liabilities. Research suggests that Australian households typically hold insufficient personal insurance, whether it is in the form of:

Life Insurance

1

What is life insurance?

What would happen to the family finances if you or your partner weren’t around anymore? Life insurance, which can be taken out for the primary homemaker as well as the primary income earner, pays out a lump sum in the event of death.

How do I get it?

If you are a member of a super fund, you may have default life insurance. Insurance is sometimes cheaper inside super but it’s unlikely to provide a large payout. To increase your cover, your adviser can help arrange a separate policy outside super to suit your family’s needs.

How much do I need?

Some considerations to decide the appropriate level of cover are:

  • What assets would I want liquidated upon my death to resolve my debts
  • Would I have surviving dependants or a spouse that need to be provided for. If so, what would their income needs be while they are dependent.
  • Cost of a funeral

How does it affect my tax bill?

Inside super:

  • Premiums are tax deductible for the super fund which may pass on a discount to members
  • Tax may be payable on benefit payments, depending who receives it.

Outside super:

  • Premiums are paid from after-tax income and generally not tax deductible

Beneficiaries pay no tax on benefits received.

Income Protection

bikes

What is income protection insurance?

Income protection provides payments – generally up to 75 per cent of your normal income – during the period you’re unable to work due to sickness or injury.

How do I get it?

It can be purchased through super funds or as a stand-alone policy.

How much do I need?

Some considerations to decide the appropriate level of cover are:

  • What sick leave benefits do I have access to from work
  • How much income do I need on a monthly basis to get by
  • What liquid cash reserves can I get access to at short notice

How does it affect my tax bill?

Inside super:

  • Premiums are tax deductible for the super fund which may pass on a discount to members
  • Any payments are taxed as normal income.

Outside super:

  • You may be able to claim a tax deduction for premiums

Any payments are taxed as normal income.

TPD Insurance

runner

What is TPD insurance?

TPD provides a lump sum payment if you’re left permanently unable to work due to illness or injury. It can be used to cover outgoings such as medical bills, along with everyday living expenses such as mortgage repayments. Some policies pay a benefit if you are unable to work again in your current occupation while others pay out if you are unable to work in any capacity.

How do I get it?

It can be added to your life insurance inside super or purchased as a stand-alone policy outside super. The level of cover offered inside super may be limited, so check exactly what types of disability are covered and for how much.

How much do I need?

Some considerations to decide the appropriate level of cover are:

  • Income needs should I be unable to generate an income?
  • Cost of health care should a TPD leave me with ongoing medical issues.
  • Do I have dependants or a spouse that would be negatively affected should I be unable to financially contribute to the household.
  • Cost of making adjustments to my home or way of life (eg wheelchair ramps into the house) should this be required due to ongoing medical issues.

How does it affect my tax bill?

Inside super:

  • Premiums are tax-deductible for the super fund which may pass on a discount to members
  • You may be taxed on any benefits paid.

Outside super:

  • Premiums are not tax deductible

Benefits paid are tax-free when paid to the injured party or their relative.

Trauma Insurance

surfer

What is trauma insurance?

Trauma (or critical illness) insurance provides a lump-sum benefit if you’re diagnosed with a defined major medical illness such as cancer, a heart condition, blood or organ disorders. Unlike TPD, trauma insurance is designed to help you receive the best medical care and rehabilitation services if you suffer a traumatic illness, rather than support you indefinitely.

How do I get it?

You’ll need to purchase trauma insurance as a stand-alone policy as it isn’t available through super.

How much do I need?

Some considerations to decide the appropriate level of cover are:

  • Ongoing medical costs
  • While I may physically be able to work as assessed by a doctor, you may prefer not work for a period of time while I adjust to my new medical condition, or to allow myself time to focus on treatment.
  • Would I have surviving dependants or a spouse that need to be provided for upon suffering a critical illness. If so, what would be their income needs while they are dependent.
  • Cost of making adjustments to my home or way of life should this be required due to ongoing medical issues.

How does it affect my tax bill?

  • Premiums are not tax deductible

Benefits paid are tax-free.

Find out more

Articles and tools by Centaur »

Lifewise: A valuable resource coordinated by the Financial Services Council (FSC – formerly IFSA) and funded by special contributions from the FSC’s life insurance and reinsurance members

Moneysmart: Website hosted by the Australian Securities and Investment Commission (ASIC)

  • Based on 2008 statistics, every year, 235,790 working age parents suffer a serious illness or injury and over 17,000 of them are forced to stop working, either permanently or for an extended period of time. (2)
  • 83% of Australians say they have insurance for their car but only 31% insure their ability to earn an income. A lifetime of income is by far your most valuable asset.
  • The service provided by a stay at home spouse can equate to over $90,000 annually. (1)
  • A perception that life insurance is too expensive is a major barrier - 81% say life insurance is too expensive, yet 61% over estimate the cost. (3)

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References

1. Business Insider Australia – How much is a home maker worth? We ran the numbers. 2012 [ONLINE] available at:www.businessinsider.com.au [Accessed 12 January 2016]
2. The Lifewise/NATSEM Underinsurance Report Feb 2010 [ONLINE] available at: www.lifewise.org.au [Accessed 28 January 2016]
3. OnePath Life (formerly ING Life) Australia’s Attitudes Towards Life Insurance, December 2008 [ONLINE] available at: xxxxxxxxxxxxxxxxx [Accesses xxxxxx]
4. Lifewise [ONLINE] available at: www.lifewise.org.au [Accesses xxxxxx]

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