Life Insurance and Income Protection

Life Insurance and Income Protection

Life insurance is one of those things that everyone needs but no one wants to talk about. The bottom line is that if you have responsibilities – spouse, kids and/or debts – then you need some form of life insurance and income protection.

There are two forms of life insurance – one pays out on your death, the other pays out in the event you suffer a critical illness of some kind to help you keep your “Life” together. The second one is often called Critical Illness cover or Trauma Insurance.

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Life Insurance – How does it work?

Life insurance will pay out a lump sum amount of cash to either:

  • You – in the event you are diagnosed with a terminal illness
  • Your estate – in the event you die without nominating a beneficiary
  • Your super fund – in the event the insurance policy is owned by your super fund
  • Or your nominated beneficiary/s – in the event you have nominated a beneficiary on your policy

You can typically pay your premiums monthly or annually and often premiums can be paid either directly or paid by your super fund. There are pro’s and con’s of having insurance inside your super and largely the reason for insurance in super should come down to your estate planning objectives.

This kind of life insurance invariably attracts a lower premium than Trauma cover or income protection.

How does Trauma Insurance/Critical Illness Cover work?

This pays a lump sum amount of cash directly to you in the event you are diagnosed with a critical illness as defined by your policy. The big benefits of this type of life insurance are:

  • The benefit is paid directly to you
  • It is not dependant on you being able to work or not – so you can still be working and have a successful claim for 100% of the benefit
  • You do not have to have a terminal illness to get the full benefit – in fact most of the conditions that lead to a Trauma Insurance payout result in a full medical recovery.
  • You can spend the money however you like – medical expenses, mortgage, supplement income, invest it, you name it!

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Why have Life and Trauma / Critical Illness Insurance

The easiest way to answer this question for yourself is to consider these Australian facts:

  • In 2012, there were 49,692 premature deaths*
  • There were approximately 25,000 potentially avoidable deaths*
  • 27,500 of these premature deaths were people under the age of 65*

And, what about these Australian statistics… EVERY YEAR…

  • 48,180 people suffer a coronary event – half of these are fatal*
  • 80,300 people are diagnosed with cancer*
  • 17,155 people will undergo coronary artery by-pass surgery*
  • 19,345 people will undergo coronary artery angioplasty procedures*
  • 12,410 people under the age of 65 will have their first stroke*

If you have a spouse, kids, and/or debt, you need to be financially prepared. We can help you put a plan into place that is designed to protect what you have.

*Source:  MLC Life Research “Life Expectancy & Health Statistics” 2014

Income Protection

A smart foundation of any financial plan is to first protect what you already have. To protect your most valuable assets, if you will. Now, this means different things to different people. It will also mean different things according to your stage in life. It may be that your investments are structured to protect the capital you have already built up; or maybe you use a guaranteed income stream to protect a part of your investment income.

If you still have a mortgage, debts and dependant children however, insurance is by far the smartest and most economical way of protecting the financial well being of your family. It allows you to leave a debt free estate, have a disposable lump sum amount of cash in the event you suffer a serious illness, and will even provide you with income in the event you can’t work due to sickness or injury. All this for a very small % of the amount you are protecting.

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Insurance planning has come a long way over the years and so there are now some very effective ways of structuring your insurance cover and paying the premiums so that it all fits within your budget.

Insurance is a real financial decision though, so get advice. Different insurance companies specialise in different policy types and demographics. One insurance company may be perfect for 35 -55 year old chefs, whilst another may be spot on for 30 – 45 year old electricians. So, choosing an adviser who has access to a wide range of insurance companies and products will no doubt be beneficial for you.

Financial Planning Qld PTY LTD (ACN 646 136 030), trading as Financial Planning Qld is a corporate authorised representative No. 1289377 of Insight Investment Services Pty Ltd, Australian Financial Services License No. 309996

This website contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.

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