Any individual or couple with a young family should choose to protect their spouse and children with financial protection through life, disability, critical illness, and income protection insurances.
Each of these four insurances has a different purpose, and the level of cover should be set depending on your own unique circumstances.
Life cover, also known as term life insurance or death cover, pays a set amount of money when the insured dies. The amount of cover should depend on a person's need to clear or reduce debt, and provide income for the family should they suffer an early demise.
Total & Permanent Disability Insurance (TPD) is a lump sum payment if the insured is permanently disabled and unable to return to the workforce. This type of insurance payout can be used to clear debts, provide funds for medical costs and in some cases provide an annual income stream to ensure that the family or individual maintains the same quality of lifestyle.
TPD insurance should also be used to meet the shortfall in superannuation that the insured would be unable to accumulate during a normal working timeframe.
Income Protection insurance provides an income stream should the insured become unable to work due to an injury or sickness. Benefits are paid monthly, not as a lump sum. The amount of cover is restricted normally to 75% of the insured’s gross salary.
Critical Illness or Trauma Insurance provides a lump sum of money to cover immediate medical expenses and other financial needs when a critical illness or injury occurs. This type of insurance cover pays an agreed amount to cover the insured for many different issues such as heart attacks or intensive care.
Over several decades we have seen many life insurance agents and also other financial advisers and financial planners mis-advise on what each type of insurance is predominantly for.
This has particularly occurred with the overuse of the high paying commission Critical Illness or Trauma Insurance, while the lower premium TPD has often been overlooked.
