What types of insurance are available?

Income Protection

Income Protection (also known as salary continuance) is designed to provide a regular income in the event that you are unable to work due to sickness or injury. It provides a regular benefit payment for a pre-determined value and benefit period.

The main considerations for these policies are:

• Waiting Period - the length of time you will go without your income payment until you start receiving your insurance benefit. This is usually between 14 days to 2 years. The longer the waiting period, the cheaper the insurance premiums, as you are less likely to claim.
• Benefit period - how long you will receive the insurance payment for. This is usually between 2 years and up to age 65. The longer the benefit period, the more your insurance will cost.
• Generally, the premiums paid on Income Protection insurance are tax deductible which reduces the actual out-of-pocket expenses for you.
• Additional options such as “increasing claim” can ensure you don’t suffer from inflation and the loss of value in your insurance payment while you are on claim.

Drawbacks

• The maximum insured amount is usually 75% of your salary, which can leave you at a financial disadvantage unless you receive a lump sum from TPD or Trauma insurance which includes compensation for this.
• As the premiums are tax deductible, the benefit payments received are assessable income and will be taxed at your Marginal Tax Rate.

 

Life Insurance

Life insurance is a lump sum payment in the event of your death, to help your surviving beneficiaries (including your spouse) cope financially without you. It can include coverage for such things as funeral and estate planning expenses, future education expenses for children, repayment of debt and providing funds to supplement your lost income. Changes in your circumstances often necessitate a change in the sum insured. Life insurance can be structured either inside or outside of super.

Features

• Life insurance benefits paid are usually tax-free
• Life insurance payments are usually finalised and paid prior to an Estate being finalised and settled, which provides beneficiaries access to funds earlier.
• Some policies will pay a life insurance benefit upon diagnosis of a terminal illness, providing even earlier access to the funds.

Drawbacks

• Life insurance premiums are generally not tax deductible.
• Death benefits received via a superannuation fund may be taxed if they are received by a non-dependant beneficiary. The amount of tax payable will depend on the components of the superannuation benefit and whether the trustee claimed the premium as a tax deduction.

 

Total and Permanent Disability (TPD)

TPD insurance provides a lump sum payment should you suffer an illness or injury which totally and permanently prevents you from working again.

There are 2 main definitions of TPD:

• Any Occupation – this means that you are totally and permanently disabled and unable to work in any occupation for which you are reasonably suited by your training, education or experience. This definition is usually cheaper as it is more difficult to meet these definitions.
• Own Occupation – this means that you are unable to work in your own occupation again. It is a broader definition than “Any Occupation” because even if you can work in another occupation, you may still be eligible to receive the benefit. This definition is more expensive and usually only available for people with a clear health history and who work in a relatively risk-free environment.

Features

• TPD benefit payments received are usually tax free
• TPD insurance often covers very similar lump sums as your life insurance, and similar to life, can be structured either inside or outside of super.
• TPD can also be attached to Life as an “extension” of your Life cover. This means that any benefit you receive for TPD will reduce your life cover by that same amount. This can reduce the cost of your insurance.

Drawbacks

• TPD premiums are generally not tax deductible.
• There may be taxation consequences where a disability lump sum superannuation payment is made
• TPD cover under “Own Occupation” may be only partially tax deductible if structured within super.
• A TPD benefit paid for “Own Occupation” within super may be difficult to withdraw due to the requirement of satisfying a “condition of release” of super.

 

Critical Illness

Critical illness insurance (also known as “trauma”) is a lump sum payment in the event that you suffer a “critical condition” as defined by the insurer. It is designed to help you recover from a trauma or crisis such as stroke, heart attack or cancer. This insurance is generally not held in super for the same reasons as “Own Occupation” TPD, as it can be difficult to withdraw once the payment is received by the super fund

Features

• Trauma insurance can be connected to cover held in super (such as an extension of your life cover) which can reduce the cost.
• Critical illness payments are usually tax free

Drawbacks

• Critical Illness premiums are generally not tax deductible.
• The definitions of “critical illness” and varying degrees of severity within each illness can make policy comparison difficult, and can lead to uncertainty with the level of cover you have.
• As suffering a critical illness is far more common than becoming totally and permanently disabled, or dying, the premiums associated with this cover are substantially higher.

 

Child Critical Illness

Most insurance companies now offer cover for children who suffer traumatic events. The events covered will vary, however the more common events include:

• Benign brain tumours
• Blindness
• Chronic Kidney or Liver failure
• Deafness
• Heart attack
• Intensive Care
• Loss of speech
• Major brain injury
• Major burns
• Major organ or bone marrow transplant
• Malignant cancer
• Meningococcal
• Open heart surgery
• Paralysis
• Stroke

This cover provides funding for any unexpected medical costs associated with their illness, as well as lump sum payments so that the parents can afford to take time off work to be with their children at this time.