What types of personal insurance are available in Australia?
Personal Insurance is a type cover that provides financial security to your life and your family's in the event of a serious injury or illness, loss of ability to earn, total and permanent disablement or death. This cover will enable you and your family to maintain your way of living by providing payment to cover any outstanding debts and everyday expenses. The four main types of personal insurance include:
- Life insurance. This is designed to pay out your dependents a lump sum if you pass away.
- Total and permanent disability insurance. This type of cover provides you with a lump sum if you are injured or fall ill and are unable to work permanently.
- Critical illness insurance. This provides you with a lump sum if you suffer a serious injury or illness as defined the policy.
- Income protection insurance. This replaces a portion of your income.
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The four types of personal insurance coverage
Four types of insurance can sum up all other insurance plans available in the market. They may have similar features and benefits, but they have all been designed for one purpose – to give you peace of mind and protection.
They can be purchased separately or as a package depending on your needs and the risks you are exposed to.
1. Life Insurance
Life insurance is one of the oldest types of insurance in existence. It was also the first to be made readily available to the general public. There are two types of life insurance; whole life policy, in which Australian life insurers offered in the past and term life cover.
How long can I get covered for?
With term life insurance, you have the flexibility to choose the period of time you would like to be covered for, from 5, 10, 20 or 30 years. When deciding the right term for your situation, it is important to assess your short and long-term financial commitments, future expenses, and the duration of time that you want to continue providing for your family.
What can life insurance be used for?
Life insurance was primarily designed to provide coverage in the event of your death or if you have a terminal illness, with only 12 months to live. It pays a lump sum benefit, which can be used in any way your financial dependents deem to be necessary. Life insurance proceeds can be used by the family to:
- Pay for funeral expenses
- Pay off mortgage and other financial obligations that have left behind
- Take care of your estate planning needs
- Pay for other extra expenses your family might need
- Provide a reserve for your spouse should they decide not to work anymore.
2. Income Protection Insurance
Income protection insurance is the most overlooked type of insurance policy. A lot of people would purchase car insurance or home insurance without batting an eyelash; while not giving income insurance a thought. Contrary to what is circulating, income insurance can be a great help to you in one of the most stressful times of your life – temporary unemployment due to an illness or injury, which could often last for an extended period of time.
What does income protection provide?
Income protection provides you a steady stream of monthly income by paying you 75% of your gross monthly wage. This is given when you become disabled due to an illness or injury. You can continue receiving this benefit every month until you are able to go to work again. Furthermore, income replacement premiums are generally tax-deductible, but the benefit payments will be taxed, as they are treated just like a regular income.
What can income protection benefits be used for?
Income protection can be used for the following benefits:
- Helps you with daily expenses, such as bills and food
- Pays the rent or costs of maintenance
- Helps pay mortgage and other debt repayments.
3. Critical Illness or trauma
Critical Illness insurance pays you a lump sum upon diagnosis of a traumatic medical event, such as heart disease, cancer, or stroke. As it is a type of a living insurance, it does not wait for you to die before you can benefit from it. Also known as Trauma Insurance, Critical Illness insurance can be a great help when you are going through tough medical situations by providing an alternative source of funding to your financial commitments, so that you can focus on getting better.
What types of illness can critical illness policy?
Critical illness policy covers may cover up yo 40 different types of medical conditions; however, it is important to note that the definition and medical events that are covered may vary from provider to provider (for example, heart attack). Therefore, it is essential to ask your insurance provider of what is and is not included in your policy before signing along the dotted lines
What can critical illness be used to pay for?
Critical illness insurance can:
- Cover your medical expenses
- Purchase medical equipments to aid your recovery
- Pay rehabilitation costs
- Cover the hire fees of a nurse/housekeeper
- Home modifications
- Provide funds for a holiday for you and your family to recuperate
- Gives extra income to your family to keep up with ongoing financial commitments.
4. Total and Permanent Disability (TPD) Insurance
TPD cover provides a lump sum payment to help you cover for the costs and expenses incurred when you have been rendered permanently disabled, due to a serious illness or injury, and it is unlikely for you to return to a full working capacity in the future. This lump sum benefit can be used by you and your family to:
- Pay for medical expenses
- Pay for your rehabilitation costs
- Cover fees on hiring a nurse/housekeeper
- Modify your home and vehicle to cater to your new condition
- Keep up with daily living expenses and other immediate financial commitments.
In short, Total and Permanent Disability insurance allows you the financial freedom that could otherwise be difficult to achieve when you become disabled. TPD insurance can ease the stress of the situation and you can have the peace of mind knowing that there is a financial backup to fall upon despite of your new condition.