Types of personal insurance

Personal insurance comes in different kinds to suit many situations concerning your future and your loved ones.

If you are thinking about getting life insurance, chances are you might have started looking around for different types of insurance policies and insurance providers. However, if you have been shopping for life insurance, you might have found out already that there are virtually hundreds of insurance providers in Australia - a figure that is rising steadily. Therefore it is quite an irony that Australia holds a place in the list of the most uninsured countries among developed nations.

Putting the figures and numbers of insurers aside, this fact must have given you confusion as to what of type of insurance policy you might choose. Before being able to choose the right kind of insurance plan for you and your family, there are certain necessary factors that you need to consider. But before this, it is most important to understand what each policy is and what they offer.

Understanding the nature of each type of insurance makes the choice much easier and less of a dilemma. It also lets you avoid pitfalls and problems that might occur in the future due to a wrong choice. It may come as a cliché, but knowledge, especially about the nature of each type of insurance policy, is power.

The Different Types of Life Insurance

Among the hundreds of insurance plans or policies available in the market, it can be categorised to only just four types – life insurance, income protection, critical illness, and total and permanent disability insurance. Although they have different features, they operate with the same purpose – provide protection and peace of mind for you and your family. It should also be noted that you can either buy it as a separate policy or together as a package depending on your need and your budget. Below is a description of each type of insurance in a nutshell.

Life Insurance

Life insurance is perhaps the first type of insurance that was introduced. Its main purpose is to cover you for death. Life insurance pays a lump sum benefit to your beneficiaries when you die. Hence, you can say that life insurance gives you peace of mind knowing your family is financially protected no matter what happens to you. It might not cover for all their financial needs, but it would be enough to ease up the load. Life insurance can also do the following:

  • Pay your family back for funeral costs
  • Help pay mortgage and other financial obligations that you might leave behind
  • Look after your estate planning needs
  • Provide income for your spouse while looking for a job
  • Cover other extra expenses your family might have

In addition, life insurance has also a savings component which you can use to purchase a plan – pension arrangements. This is the least know component of life insurance which is tied to a pension plan. Through pension arrangements, you can make contributions to a pension which is funded by an insurance company.

Learn more of the benefits of Life Insurance

Total and Permanent Disability Insurance

This type of insurance gives you cover and protection against total or permanent disability caused by an accident, illness, or injury. In the event you have sustained permanent or total disability due to the given reasons, you will be paid a lump sum benefit to help you with whatever expenses and adjustments.

Under this policy, total or permanent disability is defined as being unable to work in an occupation or perform a type of occupation for which for which you have been trained for, received an education in, or gained experience from.

Total and permanent disability insurance can be helpful to you in the following ways:

  • Helps you pay off expenses incurred by the disability such as nursing care.
  • Helps you with the expenses when you have to change your lifestyle due to the disability like renovating your home to fit your current needs and lifestyle.
  • Give you an alternate source of income if your partner had to quit work to attend to you.

Total and permanent disability insurance saves you from emotional and financial stress your family would go through if you became disabled.

Learn more of the benefits of TPD Insurance

Critical Illness Insurance

Critical Illness Insurance pays you a lump sum benefit if you have been diagnosed with a critical illness, such as heart diseases, cancer, or stroke. It also goes by another name, Trauma insurance. It is designed to give you money, especially when you need it. However, it should be noted that the definition of critical illness may be different between each provider.

Thinking of being ill seems morbid. But it is better to be prepared because sickness sometimes comes knocking on your door unexpectedly – a situation which you don’t want to find yourself in. It might even be worse if you are financially unprepared. But having Critical insurance spares you from all these kinds of trouble. It should never be an option because it can prove to be very helpful to you in many ways you can imagine.

  • Covers medical expenses allowing you to choose the best available medical there is.
  • It pays for medical equipment and rehabilitation costs
  • Allows you to pay your bills and other expenses without causing additional financial stress to your family.
  • Gives you and your spouse a choice to stop working in case you needed to be taken care of.

Learn more of the benefits of Critical Illness

Income Protection Insurance

Income protection is especially designed to pay or provide you with a steady stream of income every month in case you sustained injury and has to stop working because of an accident. It pays a benefit of up to 75% of your gross monthly. It is especially designed so that you can focus more on the most important thing – your fast recovery. Income protection insurance accomplishes two things:

  • Maintains your basic household lifestyle, and
  • Takes care of daily expenses, meet mortgage and debt repayments, and pays the rent or maintenance costs.

Furthermore, income replacements are generally tax deductible, but payments paid are taxed.

Learn more of the benefits of Income Protection Insurance

Other Forms of Insurance Cover to Consider

  • Home, content and personal valuables insurance can be tailored to meet your specific requirements. No matter if you own the home yourself or if you are renting from a landlord, you will find this type of insurance policy can be structured to fit in with your particular needs. For example you may only need your contents insured if you are renting, you may have a valuable camera that you want covered when you take it away from your home while photographing. A similar situation might occur with you laptop computer and many other personal items. An important part of this type of insurance in the legal liability cover you also receive that covers you against financial loss should you be sued for someone being injured whilst on your property.
  • Car insurance is important when you are on the road no matter who is to blame for any accident that might occur. There are two types of car insurance you can take out. One is known as compulsory third party or CTP cover and the other comprehensive motor insurance. CTP insurance protect you from any personal injury claims brought against you as a result of any accidents occurring in which your motor car is involved. Comprehensive motor car insurance covers you completely for any damage your car might do to another vehicle as well as damage sustained on your own vehicle along with any injuries resulting from the collision.
  • Landlord protection insurance is a valuable tool to have in your insurance portfolio if you own property to rent out to others. No matter how hard you try to choose the right tenants the day will always come when something goes wrong. Landlord protection insurance will insure you against financial loss should your tenant not pay rent, steals from your property or creates some kind of malicious damage that needs repairing. It will also give you cover against any legal liability claims made by anybody on the property who suffers an injury for which you can be held to be liable.
  • Travel insurance is important if you are travelling away from home and need help. It will pay for you to return home urgently to attend to any emergency that might arise and it will pay for any urgent medical care you might need while away from home as well as for any lost luggage. Travel insurance can also be used to cover you for any financial loss should you have to cancel your holiday plans before you even get to leave home.

With proper and adequate insurance you will be able to negotiate the various pitfalls scattered throughout life. You would be a very fortunate person indeed if you could live your whole life without something drastic happening that could put you and your family in financial hardships. Some people experience more hardship than others but it only takes one serious event to occur for which you were unprepared to put you back financially where you could be forced to pay out your entire savings and sometimes even more. This won't happen if you are sufficiently protected and it need not cost you as much as you think. Especially if you take into account the loss you will be exposed to if you were not insured for that particular risk.

Compare Life insurance and income protection quotes from these direct brands

Name Product Maximum cover Maximum Entry Age Minimum Sum Insured Guaranteed Future Insurability Expiry Age Short Description
No expiry age as long as premiums are paid
First month FREE when you take out Real Family Life Cover. Available for a limited time (T&Cs apply).
Receive a 10% discount on the second person when two applications are submitted at the same time, and both policies are issued.
Choice of cover options and flexible premiums to suit your budget. No lock-in contracts and fast application.

Tailored life insurance so you know what you're covered for upfront. Take out a policy and get a $100 bonus gift after holding cover for 2 months. T&Cs apply. Ends 31 March 2019.
No expiry age as long as premiums are paid
Cover up to $1.5 million with Guardian Life Insurance.
Protect your family with up to $15 million in cover. Plus, get your first month free. T&C's apply.
No expiry age as long as premiums are paid
Receive one month's premiums off every year if you pay annually upfront. T’s and C’s apply.

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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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Richard Laycock

Richard is the Insurance Editor at Finder, wrangling insurance product disclosure statements for the better part of five years. His musings on insurance can be found the web including on Yahoo Finance, Travel Weekly and Dynamic Business. When he’s not helping Aussies make sense of insurance fine print, he is testing the quality of cocktails in his new found home of New York. Richard studied Media at Macquarie University and The Missouri School of Journalism and has a Tier 1 certification in General Advice for Life Insurance.

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