Packaged life insurance

Compare packaged life insurance options from Australian insurance providers.

People who would not think twice of having insurance for their home, car, and health often neglect insurance for the people closest to them.

The premise of life insurance is rather simple. In the event that someone passes away or is diagnosed with a terminal illness, a lump sum benefit is paid to their nominated beneficiary.

People gamble that nothing will happen to them. In most cases, that is true. What if something does happen? Would your family be forced to endure financial hardship if you were to suddenly pass away or become disabled and forced to retire?

It is time to consider purchasing life insurance if leaving the family in a position of stability is desired. All things considered, the price of protecting loves ones costs very little.

Trauma insurance is another form of insurance that is worth considering. This type of insurance pays a lump sum benefit when a person receives a diagnosis for a traumatic health condition such as stroke, open-heart surgery, heart attack or cancer. Many insurers will allow applicants to bundle trauma insurance with their life cover policy.

Combining different types of cover is not new, and it can ensure that you receive adequate cover for a number of different losses at an affordable rate. It is also generally more cost-effective than taking out multiple policies.

Benefits of a packaged life insurance plan

There are a number of benefits worth considering when looking at bundling different types of cover;

  • A 10% saving on insurance premiums is possible when different products are combined into one bundle.
  • Other benefits include less maintenance, less complication and confusion.

Here are some packing options that are available: Income Protection and Life Insurance; Income Protection, Life, and Permanent and Total Disability Insurance: Income Protection, Life Insurance, and Trauma Insurance; or Income Protection, Life Insurance, TPD, and Trauma Insurance. Income protection pays up to 75% of gross monthly income when unable to work because of disability or illness. Total and Permanent Disablement Insurance (TPD) pays a lump sum when work or performance of duty related to education, experience, or training is impossible.

Drawbacks of packaged life insurance

The choice between linked bundling depends upon individual circumstances. Usually, stand-alone policies offer more flexible coverage. That flexibility has a price. One extra cost is the money needed to for duty stamps that are payable on each policy.

Ensuring sufficient coverage for a situation is the most important issue. Suppose a serious illness or accident renders one unable to work. In a linked policy that covers $1 million in life insurance, TPD coverage of $700,000 and trauma coverage of $350,000, making a trauma claim may cause the loss of opportunity to claim a full life policy.

Making a TPD claim can be even worse. Life insurance can be reduced by the TPD claim amount because the insurance company considers the event as a shared risk. Now, the $1 million life insurance policy is reduced to $300,000. With a stand-alone claim, the $1 million life insurance would be unaffected.

Packaged life insurance with buy-back feature

When the scenario explained above that reduces the $1 million life cover policy to $300,000 occurs, an opportunity to later buy back TPD cover may be possible. A buy back means the original $1 million cover can be reinstated after one year.

The buy-back option is part of packaged life insurance, and is standard with some companies. Some companies charge an additional premium.

A one-year time period is standard before reinstatement is made. 30 days prior to one year, the insurance company will need to confirm your desire to reinstate your cover.

Medical underwriting is not required to increase coverage. Premiums will not be re-rated because of changing health circumstances.

When the life insurance policy is reinstated, there is no longer any TPD cover, rather premiums are adjusted for full life insurance cover. In the event that a claim on life insurance is made in the interim, the beneficiary will receive the reduced coverage amount.

Buying back life insurance is not the same as reinstating TPD coverage. TPD cover buy-back allows another unrelated claim by the insured.

Family packaged life insurance

No one knows what the future will bring. Everyone wants to protect those they love. Death can cause loved ones to suffer emotionally and financially.

Either partner, or a partner and children could suffer financial consequences due to one partner’s death where the one remaining is left coping with the financial responsibilities alone. If an individual who died is the main wage earner or looks after the children, the situation becomes more complex. The surviving partner has to make alternative arrangements.

Joint life insurance arrangement

Having life insurance is one way to ease financial strain. If only one partner has life insurance, the family could still find itself struggling financially.

Some couples opt for individual life insurance coverage, which could be costly. However, joint life insurance is available. People who co-habit or are married are the usual candidates for joint life insurance.

These couples often have children for whom they want protection. A life insurance purchase on their children is not something many parents consider. Here are some things to consider about family packaged insurance:

  • Long standing illness of a child can put emotional and financial stress on a family.
  • Insuring children can reduce the financial burden that can occur because of sickness or a child related accident.
  • Recuperation and rehabilitation can take a long period of time.

Child cover

Death of a child is another unpleasant thought to ponder. The emotional impact would be devastating. Financial loss does not have to make matters worse.

Funeral expenses are on the rise. Being unprepared can increase a family’s debt.

Death and illness are not the only situations that are eased by life insurance coverage for children – the policy has cash value which can be accessed to help finance a college education, as an example. Some policies have cash value that builds interest and is tax-free when accessed.

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Maurice Thach

An insurance researcher and writer for finder.com.au who loves finding an answer to the question "Am I covered for ________?" Maurice has also completed a Tier 1 Life Insurance and a Tier 2 General Insurance Certification under ASIC's Regulatory Guide 146. This means he can confidently provide general advice for life insurance and non-life insurance products.

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