Most of us would agree that when we get married or have children, we should also have life insurance. We insure our cars, our homes and our belongings, yet we often neglect to insure our most important assets – ourselves and our income. The reality is… if the unexpected occurs and our income stops due to serious illness, injury or death; our ability to meet our responsibilities, our family’s current lifestyle, and our plans for the future are affected.

What if the unexpected occurs?

Do you have a ‘Plan B’ that will help see you and your family through a difficult time?

Do I need personal protection insurance?

When considering this question, it is important to answer the following:

1. If I was injured or became seriously ill and was unable to work, would I have enough income to pay for my current lifestyle?

2. If I was injured or had a serious illness…  would I be forced to:

a.    Sell my home & other investments
b.    Rely on family for money & support
c.    Rely on Government benefits

3. If I died, what financial position would my family be in:

a.    Better
b.    Similar
c.    Worse

What is personal protection insurance for?

Having the right personal protection insurance gives you the peace of mind that you and your family will be financially OK if something happens to you. 

It’s also a way of protecting your family if you’re no longer there to help them.

Some Uncomfortable Facts:

Australia is one of the most underinsured countries in the developed world.  Did you know?

•    95% of Australians don't have adequate insurance cover? (Lifewise / NATSEM Underinsurance Report 2010)
•    Insurance cover within super typically amounts to just 20% of what’s required? (Lifewise / Rice Warner Actuaries)
•    20% of Australian families will experience the unexpected death, serious accident or illness of a parent? (Lifewise / NATSEM Underinsurance Report 2010)
•    1 in10 die between the age of 20 – 55 (Rainmaker Group 2010)

How Much Personal Protection Insurance Do I Need?

The amount is different for everyone but it is important to set aside sufficient monies to:

If I died:
•    Pay out my debts
•    Pay for my funeral
•    Put aside a lump sum of money for school fees for the children
•    Put aside a lump sum of money to support the family until they are no longer financially dependent

If I was sick or injured:

•    Continue to pay the rent/mortgage
•    Continue to pay for car, utilities and household expenses
•    Continue to pay for food, groceries and other living expenses
•    Continue to pay for school fees
•    Pay for any additional medical expenses and rehabilitation

Give us a call to discuss your personal protection insurance requirements.

Types of Insurance:

For your information, we have summarized below the major types of insurance available:

Life Insurance

Depending on how the cover is structured, life insurance provides a lump sum payment upon death to either your:
-    Beneficiaries
-    Estate or
-    Superannuation fund. 

It is important that the cover and insured amount are right for you. 

The cover can either be held in your own name, in the name of someone else (eg. Spouse, child or business partner) or held within your superannuation fund.  Each arrangement has it’s own set of taxation consequences, which are important to consider when putting in place your life insurance.

Total & Permanent Disability Insurance
Total and permanent disability (TPD) insurance will provide a lump sum payment should you suffer an illness or injury which totally and permanently prevents you from working again.

Depending on how the cover is structured, TPD payments are generally tax free.

Critical Illness Insurance
Critical illness insurance (also referred to as trauma insurance) provides a lump sum payment when you suffer a defined illness.

Critical illness cover is designed to help you financially recover from an illness known as a critical illness, trauma or crisis such as a heart attack, stroke, cancer or other life threatening conditions.  However, each insurance company covers different types and number of illnesses, so it is important to ensure that the cover is right for you.

Income Protection Insurance
Income protection insurance (also referred to as salary continuance) is designed to provide a regular income payment in the event you are unable to work due to sickness or injury.  The benefit amount is generally 75% of your income for a maximum predetermined benefit period.

Some cover provides a maximum benefit period through to your 65th birthday, while others limit the income replacement to 2 years.  It is important to carefully consider what benefit period is right for you.

Personal protection insurance myths

Myth 1: I have enough insurance inside my super.
Unlikely.  

Remember the minimum level of cover provided via your super fund is set with all members in mind.  It is therefore unlikely to be exactly the level of cover you and your family need and may not be enough to cover all or even just some of your debts.  Make sure you contact your super fund to find out your level of cover.

Myth 2: I don’t need insurance, the Government will look after me if I get sick or injured.
This would be nice but it’s not really the case.  

Centrelink will pay a maximum disability pension of $569.80 per fortnight for singles and $475.90 (each) for couples1. Would this cover your current lifestyle?

Myth 3: Workers’ compensation will cover me.
Not usually.

Workers’ compensation only covers accidents or injuries that occur during working hours or for an illness that’s the direct result of your employment. The majority of accidents and illnesses occur outside of the workplace. So if you want to protect your lifestyle and your family it’s unwise to rely on workers’ compensation alone.

Myth 4: Life insurance is not affordable.
For most Australians insurance is very affordable.

For example, a 35 year old male, non-smoker applying for $500,000 of Life Insurance cover the monthly premium would be approximately $30. A 35 year old female, non-smoker applying for $500,000 of Life Insurance cover the monthly premium would be approximately $25.

That’s peace of mind for less than the cost of a coffee a day. If you have some existing cover, increasing this to adequate levels may cost you even less than that coffee.

You may find a budget planner a useful tool to help you see how you could free up the spare cash to ensure you have the right level of cover.

Myth 5: Life insurance companies do not pay claims.
Life insurance companies pay out almost $10 million every working day in claims to customers2. This figure would be even higher if the Australians had adequate levels of cover.

Myth 6: Many people have to pay higher premiums or cannot get life insurance at all.
Insurers are in the business of giving people access to insurance at an affordable price. If they failed to do this, they wouldn’t have a business.  Data from the Investment and Financial Services Association (IFSA) indicates that around 93% of applicants pay standard premiums for their life insurance3. People who have a higher risk of developing chronic illness or who work in high risk occupations are usually required to pay an extra premium to cover this risk - but this only applies to a few people (the remaining 7% of applicants). And only a very small number are not able to be covered at all.

Myth 7: Most people have enough insurance.
Unfortunately, this is not the case. In fact, research shows that 60% of families with dependent children do not have enough insurance to cover the household expenses for a year if the family bread winner were to die4. We also know that on average those that have death cover through their super policy have less than the cover they need5.

Ironically, most Australians insure their homes and cars but less than a third insures their most valuable asset – their income. This causes unnecessary hardship for numerous Australians.

Give us a call to discuss your personal protection insurance requirements.

Sources:

www.lifewise.org.au
1 Centrelink website. Rates are a guide only and are effective from 20th March 2009.
2 IFSA analysis based on APRA data and Risk Store data 2007
3 IFSA, industry underwriting analysis 2007
4 IFSA/TNS Protection Gap research 2005
5 IFF/AIST Research, 2008

Please Note:

This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances.  Please seek personal financial and tax and/or legal advice prior to acting on this information.

Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.

The material contained in this document is based on information received in good faith from sources within the market, and on our understanding of legislation and Government press releases at the date of publication, which are believed to be reliable and accurate.