Nowadays, there are hundreds of insurance policies available, and it can sometimes be quite confusing which one is actually worth getting. While there are many policy arrangements, these can all be categorised to just four types: life, total and permanent disability, income protection, and trauma.
In this interview, financial expert Bart Healy of Adroit Financial Group discussed each type of insurance and their merits.
Four Main Types of Personal Insurances
Life insurance, probably the most common type of insurance known by most people. It’s simply about being alive or not, and if you are not alive, your estate, family or beneficiary receives a payout.
According to Healy, most clients find it hard to decide how much is enough. For him, it largely depends on one’s current debt. “If they’re not around to service that debt would their loved ones be able to service that debt, or would they have to sell assets to extinguish that debt?”
Thus, mortgage should be considered, as it is a big cost. Aside from mortgage debt, it’s also worthwhile to consider replacement income in your life insurance plan. When an allowance for replacement income is included in the payout, it can take a lot of the financial burden off your family.
Total and Permanent Disablement Insurance (TPD)
TPD insurance is your cover in case of a worst-case scenario. TPD means being unable to work or perform a type of occupation for which you have been trained for, educated in or gained experience from.
Healy explains, “If you are disabled to a point where you can no longer be part of the workforce, then you’re qualified for a payout”. As with life insurance, calculating the amount for TPD plan should involve debt allowance, as servicing the debt will be quite tough in such a situation.
Does TBD cover risky lifestyles (e.g., skydiving)?
It depends on the type of policy. Healy shares that generally, TPD does cover such instances, especially if the policy is under a superannuation fund. For retail policies, however, an underwriter will conduct a health and lifestyle assessment, and will decide the premium based on the information.
This type of insurance covers short-term injury and illnesses. It can pay a benefit of up to 75% of your gross monthly income.
Income protection works hand in hand with TPD, in that TPD can cover for big costs like medical expenses, mortgage and others, and income protection could serve as your revenue component in case you are unable to work.
Also known as Critical Illness insurance, this covers about 40 different conditions, depending on the insurance provider. The most common illnesses covered are cancer, heart attack and stroke. From diagnosis, one can already receive the payout if stipulated under the policy.
Our expert, Healy thinks trauma insurance is a hard but necessary protection. It is, “Toughest pill to swallow, you can’t find it in a superannuation fund, it’s not tax deductible and dollar for dollar, it’s a bit more expensive than others. But we see it pay out a lot”, he says.
While each type of insurance may be distinct from one another, they are all designed for the same purpose – to provide protection and security for you and your loved ones. Consider your situation before deciding on a plan, to get the most out of your investment. If you need help deciding which insurance policy is most suitable for you, book a FREE consultation and one of our qualified consultants can assist you.