As a financial adviser that’s been providing advice for almost 20 years now, I often talk to people who have negative feelings when it comes to life insurance. However, whenever your financial situation changes (like buying or selling a property), you should take to the time to review your personal insurances. As by not doing so, you could be holding more insurances than you need and wasting money or putting your financial wellbeing at risk by not holding the appropriate levels of insurance.
I speak from a first-hand experience as I’ve personally benefited from holding insurance, particularly trauma insurance; one of the most underappreciated covers in the suite of personal insurance options.
Given at an early age my mother had passed away from cancer, and a couple of all my siblings have had their own battles with cancer, I’ve always taken a diligent approach to my own health when it comes to getting checks done regularly.
A few years ago, during a routine trip to the skin clinic, my doctor mentioned that she’d spotted something “interesting” – not the word I’d like to hear during a skin check. After a biopsy, it was discovered that I had early stages of melanoma on my chest. As you imagine, plenty of thoughts went through my head… particularly what would happen in the worst case given my wife is a stay-at-home mother of three young children.
By holding a trauma insurance policy, I was able to make a claim and use those funds to pay for the best treatment available at the time without having to worry about the cost and how this would impact my own financial goals. After successful treatment and an operation, I made a full recovery (and am keeping up the quarterly skin checks) and experienced first-hand what I have been talking to clients about for all those years, and how holding personal insurances took away at least one major stress while going through such a challenging time.
Now, I understand that my experience was minor compared to some of the claims that I’ve had to process for my clients over my time in the industry. But by sharing this, I want to highlight that it only takes a few minutes to consider the levels and types of insurances you hold… however, it also only takes a few minutes for a successful, healthy life to suddenly feel vulnerable. By not holding trauma insurance, the financial impact could have been extremely detrimental to my, and my family’s financial wellbeing.
Deciding on what is right for you isn’t easy, as to complicate the situation, insurers assess occupation types and personal health histories differently. What this means, without the appropriate level of help, you could be declined certain covers by one insurer, where another insurer would be happy take on the risk. This is where using the services of a Financial Adviser enhances your chances of obtaining the right cover, personalized to you, at the right price.
In order to help you consider your insurance needs, I thought it would be a good idea to share a few myths when it comes to insurance. It’s worth knowing the facts, as some of these myths could be stopping you from getting cover you really need.
Here we outline the common types of insurances and dispel some common myths about personal insurance to help you make informed decisions about your cover.
Common types of Insurances
Income protection (IP)
Pays a monthly benefit amount if you’re unable to work due to illness or injury. This can help you maintain your standard of living and cover your expenses while you focus on recovering your health and are able to return to work.
Most income protection policies, you can receive up to 70% (75% for older polices) of your income. You can also tailor your waiting period (how long before payments begin) and benefit period (how long you can receive the monthly benefit for) to suit your needs and budget.
Many people may hold IP insurance within their superannuation fund, however, many superannuation held policies only pay a monthly benefit for 2 years, where you could benefit from holding a policy that could pay until you are aged 65.
Trauma insurance, also called ‘critical illness’ or ‘recovery insurance’ pays a lump sum amount if you suffer a critical illness or serious injury. This includes cancer, a heart condition, major head injury or stroke. Trauma insurance does not cover mental health conditions.
What’s covered under a trauma insurance policy and medical definitions can be different between insurers. To understand what’s covered under a trauma insurance policy, read the product disclosure statement (PDS).
Trauma insurance can be used to help pay for:
- out-of-pocket medical costs
- living expenses for you and your family while you’re unable to work
- the cost of therapy, nursing care and special transport
- changes to housing if needed
- paying back your debt, for example, a mortgage
Total Permanent Disability (TPD) Insurance
TPD insurance provides for you if you were to become permanently disabled due to accident or illness and are unable to work in any capacity in any occupation based on your previous education, skills, training or experience.
Total Permanent Disability Insurance provides you with a lump sum payment, giving you the means to access the best medical and rehabilitation treatments, and providing you with financial security so you can go on making the most of your life.
Provides a lump-sum payment to your loved ones in the event of your death or being diagnosed with terminal illness. This can help cover expenses such as funeral costs, outstanding debts, and ongoing living expenses.
Myth # 1 – Life insurance companies don’t pay claims
There’s a common perception that life insurance companies will do everything they can to avoid paying claims.
In fact, 92% of all life insurance claims are paid in the first instance¹.
As long as you fulfil your duty of disclosure when you apply for cover, and you’re covered for the medical condition you’re claiming for, you can be confident your claim will be paid.
Myth # 2 – The cover in my super is enough
Over 70% of Australian life insurance policies – more than 13.5 million separate policies – are held through superannuation funds*.
While this cover is great to have, many of these policies only provide the minimum level of cover employers have to offer, which isn’t enough for most people.
In fact, Rice Warner* estimates that the median level of cover in superannuation meets is only 60% of needs for life cover (or just 38% for families with children), 13% for TPD cover and 17% for income protection.
Basic needs met by life insurance cover in super
*Insurance through superannuation, 2016, www.ricewarner.com/insurance-through-superannuation/
Myth # 3 – You have to do lots of medical tests to get covered
Some life insurance products sold through financial advisers require some medical tests before you get covered, but it may be as simple as one blood test and a GP examination.
- If you have an existing medical condition, you may be asked to provide extra information about your condition and insurers will generally write to your doctor for a report rather than require tests
- You generally won’t be covered for pre-existing conditions, so it’s important to establish upfront what those pre-existing conditions are. It’s important to answer all questions accurately upfront so any pre-existing conditions can be reviewed by your insurer for any impacts to your cover or ability to obtain cover.
- That way you know exactly what is and isn’t covered under your policy.
Myth # 4 – I’ll be stuck paying for cover I don’t need
Life insurance is designed to change as your life changes, as your cover needs can vary significantly over your lifetime.
An example may be when taking out life insurance when getting married. You may want to increase your cover if you have children or increase your mortgage. But similarly,
you may want to reduce your cover if your children have grown up or you’ve paid down your debts.
We can help you work out how much cover you need at any given time, to make sure you’re not paying for any cover you don’t need.
Myth # 5 – I’ll be covered by workers’ compensation.
Workers’ compensation provides some protection for work-related accidents or injuries.
But it doesn’t cover most illnesses, nor does it cover anything that happens to you when you’re not at work. It’s worth checking your states workers compensation legislation http://www.safeworkaustralia.gov.au/workers-compensation.
Even if you are covered by workers compensation, the benefits are typically capped in terms of the amount and duration of payments, which means the cover could fall well short of what you really need.
Myth # 6 – Only the main breadwinner needs life insurance.
There’s no doubt insuring the breadwinner is vital for any family’s financial security.
But if a non-working or lower income-earning partner became seriously ill or injured, their family would need a lot of assistance to replace their services within the home.
Imagine a breadwinner had to reduce their working hours to look after their partner or young children or employ outside help.
Either option could prove very expensive, which is why both members of a couple should consider the various life insurance cover options available – regardless of their role.
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Financial Planning advice is provided by Thesan Private Wealth, ABN 54 661 639 247, Corporate Authorised Representative #425962 of TFS National Pty Ltd, Australian Financial Services Licence No. 532141. This document contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider if it is appropriate for you. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. Past performance is not a reliable indicator of future performance.