What personal insurance do I need?

Personal insurance allows you to protect what’s important to you

The older we get, the more responsibilities we inevitably have: mortgages, car repayments and maintenance, children, school fees, and never-ending bills. The people in our lives depend on us and our income for survival. 

If you are the sole or primary income earner, it can be a crippling thought to imagine what would happen to your family if you died, could not work or suffered a serious illness or injury. Unfortunately, the bills keep coming, or can increase, when you have had a life-changing incident. 

That is why personal insurance is so vital for the stability and security of your family. 

Think of an insurance policy as a backup plan for when life hasn’t gone according to plan; it helps cover and secure your family’s financial wellbeing.

Personal risk insurance can provide you with peace of mind. It shifts the financial burden to the insurers when certain life-changing events occur, such as a terminal illness/death, trauma, or total and permanent disability.

Do I need insurance?

The short answer is yes. It is very unlikely that you would not require any cover. If you have a mortgage or any debt, are relied upon for paying bills, or have dependents, you need personal insurance. The more pertinent question is: “What insurance do I need?”

What insurance do I need?

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The decision to take out personal insurance is about limiting risk.

When reviewing the different types of cover, it is crucial to consider your circumstances and risk profile. The type of cover you require will depend on your debt level, family situation, and profession. Discussing your options with a certified financial planner is important, as they can guide you in making appropriate decisions for you and your family. In general, there are four main types of cover.

Life (also known as death cover) 

This cover pays a lump sum on your death or if you are diagnosed as terminally ill (note: this is separate from private health insurance). Life cover provides financial security for your dependents and can be used to pay out your mortgage, provide an investment sum or income stream for your family, or fund the sale of a business. The premium/cost depends on the level of insurance cover you take out. It can be paid personally or through superannuation. 

The benefit is paid to your nominated beneficiaries, who can be a spouse, child, family member, organisation, trust, or a combination of those above.

Total Permanent Disability (TPD)

TPD cover pays a lump sum if you become totally and permanently disabled and are unlikely to ever work again in a job which you are reasonably qualified for by education, training and experience. It can cover debt repayments, medical costs, or provide for your dependents. Likewise, it can be used to fund the sale of a business if the owner becomes disabled. 

This type of cover can also be paid through superannuation.

Income Protection (also known as salary continuance) 

Income protection cover replaces your income if you cannot work due to injury or illness. Income protection insurance ensures 75% of your income up to age 65. It is usually not for short-term protection; it is about protecting your capacity to earn in the long term. 

For tax purposes, any payments you receive from a policy are classed as assessable income. You are usually able to claim a tax deduction on the premiums. 

When taking out this type of insurance, it is important to note that there are usually waiting periods for receiving benefits. These can range from two weeks to over a year and depend on what you select when taking out the policy. The longer the waiting period, the smaller the policy cost.

Trauma (or critical illness)

This type of insurance provides a lump sum if you are diagnosed with a serious illness such as cancer or coronary disease. The benefit is paid when the diagnosis is confirmed. The lump sum can be used however you require. It can help fund medical expenses, pay off your mortgage, or just allow you to focus on your family and recovery during a difficult time.

What factors will affect my premiums?

A premium is the amount you pay for your insurance. It varies for each policyholder and is calculated taking into consideration several factors:

• Age
• Gender
• Smoker status
• Your health (including pre-existing conditions)
• The life insurance company you select (each has different base rates on offer)
• The type of premium you select
• Add-ons (you may choose additional policy options at a cost).

When is the best time to take out life insurance?

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It is common for people to take out life insurance for major life events such as buying a house, getting married, or starting a family. However, the earlier the better. 

Your health status can change anytime, but as a general rule, the younger you are, the healthier you are, and your health status affects your premiums/costs.

How much cover do I need?

The answer to this question is “it depends”. It depends on your personal and financial situation. When deciding on what types of insurance and what level of cover, it is essential to consider what ongoing financial obligations you have:

• Debt (credit cards, cars, mortgages, personal loans)
• Living expenses (day-to-day bills: food, household bills, social life)
• Future expenses (children’s education)
• Any future benefit/inheritance you would like to leave for your children.

Finding a balance between the premium you pay and affordability is crucial. Taking out insurance, which is paid through your superannuation, effectively balances this. Seek expert advice for the most appropriate solution for you and your family.

What else do I need to know?

There are different types of covers, and most importantly, various levels of cover. The quality of a policy is critical when deciding on an appropriate policy. Cheapest is not necessarily the most suitable for you. Do your research, know what each policy covers and decide which fits your situation.

Policies taken out under different ownership structures have different tax implications. Talk to your financial adviser about this when selecting your policy.

Who should I see?

For tailored personal insurance advice, contact the award-winning team at Elliot Watson Financial Planning. Call 02 4038 1623 for an initial consultation to discuss how to achieve your goals and protect what is important to you.

Disclaimer:

The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information, you should consider its appropriateness regarding your objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser.

The views expressed in this publication are solely those of the author; they are not reflective or indicative of the licensee’s position and are not to be attributed to the licensee. They cannot be reproduced in any form without the author’s express written consent.

Elliot Watson Financial Planning Pty Ltd and its advisers are Authorised Representatives of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.

Article by Izack Fuller – Financial Adviser