Life insurance; the general perception is that it is a cost that I have to pay every year and I get nothing in return. Many of us though have realised its purpose and are firm believers in its necessity. It offers peace of mind and financial security to your loved ones knowing that at least they do not have to worry financially if you were no longer around or unable to work.
We tend to turn to family and friends for advice and make decisions based on their experiences. This advice may or may not work in your favour, because everyone’s circumstances are different. Therefore, my aim here is to arm you with the basic knowledge so you are in a better position to make a much more informed decision.
Life, Total and Permanent Disability, Trauma and Income protection insurance are a risk mitigation or more specifically risk transfer tools available to you. Our aim is to look at events that are low probability but would have a high impact on us or our families. The decision you have to make then is whether you are willing to take that risk on behalf of your family or insure against that risk.
If a household is dependent on an individual’s income to meet ongoing living expenses, make mortgage repayments and pay school fees, what happens in the short term and long term if they pass away or become seriously injured/ill?
This is where we look at the various types of insurance that are available and what their function is as a part of a risk mitigation strategy for a family.
Life Insurance
It is straight forward, you or your estate receives the lump sum insured amount if you suffer a terminal illness or pass away. You would consider this cover if you have a partner and/or kids or you are planning for a family.
Total and Permanent Disability
A lump sum insured amount is paid if you are totally and permanently disabled which means you will not recover from your injury or illness and will not be able to perform any occupation ever again. There is another occupation definition available from insurers that assesses whether you will be able to perform your ‘Own’ occupation ever gain. This provides greater certainty than ‘any’ occupation.
Trauma
Trauma or Critical Illness provides a lump sum amount if you suffer a specific injury or illness as listed in the insurance policy. Most of the claims that are made under this cover are in relation to cancers, heart attacks, strokes and blood borne diseases. Trauma insurance was introduced for these specific events where you many need to take some time off work and require funds for treatment, but eventually you will be fit and healthy enough to go back to work.
Income Protection
Most people don’t realise that their most valuable asset, is their ability to work. Income Protection covers normally 75% of your income, to provide funds to meet your ongoing living expenses during the time you’re sick or injured. To be eligible for a claim your injury/illness needs to stop you from working for a minimum specified time normally known as a waiting period. The payments will be dependent on how long you are unable to work and what benefit period you elected on your policy.
As you can see there a few different types of insurance cover and they all have their different roles to play. What you require will be dependent on your circumstances and as mentioned what risk you are not willing to take on behalf of yourself or your family. The table below shows an example of some of the risks a person may consider before choosing what insurance cover to have.
Why is it important to seek advice?
Today there are many options and benefits available for the types of insurance cover we have discussed. It is important to know which of these options are correct for your circumstances and your financial budget. A financial adviser can help you navigate through the decision process and give you piece of mind that you have made the right choice. Most importantly we are there when your family needs us most, at the time of Claim. We assist you though the entire process and let your family focus on their emotional wellbeing.
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