There are four key forms of personal protection insurances:
- Life (Term) Insurance – pays a lump sum upon the death of the life insured.
- Total & Permanent Disability (TPD) Insurance – pays a lump sum upon the total & permanent disablement (as defined by the contract) of the life insured.
- Trauma (Critical Illness) Insurance –pays a lump sum in the event of a major injury or illness (as defined by the contract) of the life insured.
- Income Protection Insurance – pays a pre- determined monthly benefit for a pre-determined period of time in the event of an injury or illness, which prevents the life insured from working. The definition of working’, as in working in the previous Occupation or in some other occupation, is defined by the life office.
Life Insurance (often called Term Insurance) pays a lump sum benefit to the policy owner upon the death of the life insured, where this occurs during the term of the insurance cover (this can be up to age 99). Term insurance is usually taken out in order to repay liabilities, such as mortgage, credit cards, etc., cover funeral costs, pay off credit cards and, in the event of the death of the main breadwinner, provide a substitute income stream for the spouse so that the current standard of living may be maintained. This is especially important where dependent children are involved.
Total & Permanent Disability (TPD) Insurance
TPD insurance provides a lump sum upon medical confirmation that the insured person is totally and permanently disabled based on the definition provided in the policy document. This type of policy is generally sold as an additional benefit to term life insurance.
It is important to be clear about how the life insurance company defines the total and permanent disability in the context of you being able to continue to work in your current capacity. This definition will assist in the selection of particular products for recommendation. Generally, in order to claim on TPD, you must be off work for at least six months and, in the opinion of the medical practitioners, unlikely to ever work again; or have irrecoverably lost the use of both eyes, legs, arms or one of each.
Trauma (Critical Illness) Insurance
Modern medicine can keep more people alive following major traumas. Trauma insurance pays you a lump sum in the event of a major trauma such as a major heart attack, cancer or stroke. Most life offices also pay the benefit under trauma in the event of death. Statistics show that we will suffer some major illness or trauma during our lifetime and that we are three times more likely to suffer a condition such as heart attack, cancer, and stroke or bypass surgery than to die.
Most of us will survive the trauma but many are not able to continue working. In that case their income stream, upon which they rely for their livelihood, ceases. Trauma insurance is designed to ensure that lifestyle suffers as little as possible by paying at and when the need is highest therefore aiding recovery.
Income Protection Insurance
Most people state that their greatest physical asset is their home. They see the importance of insuring their home building and contents but most overlook their most valuable asset, their income. Your ability to earn an income between now and retirement determines what you and your family are able to do day-to-day. Income Protection cover is designed to provide you with a regular monthly income whilst you cannot work due to sickness or accident. You are able to protect up to 75% of your gross income, inclusive of any packaged benefits such as car and superannuation.