Do you have enough life cover?
Life cover provides a lump sum on the death of the insured. The pay-out then goes to the nominated beneficiaries in the policy or, if held in superannuation, to whoever is nominated in a binding nomination.
It is important to note that a life cover payout from your superannuation fund will be distributed by the trustees (as the owner) as they deem fit unless you provide them with a binding nomination dictating who should get the payout.
If the payout goes to your estate then it is distributed as directed by your will.
Life cover is there to provide support for your loved ones after you die and ensure they do not suffer any financial hardship. How much do you need? This will depend on;
- Debts you leave behind you
- Education costs
- Living costs
- How much cover you already have
Life cover outside super is paid directly to the beneficiaries identified in the policy and are paid tax free. Payment isn’t held up in your estate waiting for the executor to wind it up.
There are a number of comparison sites that will let you compare premiums and benefits. An important factor to keep in mind is that premiums can be stepped or level. Stepped premiums start lower than level premiums and increase with the insured’s age. Over time they will be more expensive than if a level premium had been chosen.
The insurer may ask you to complete a health questionnaire which you must answer honestly so they can properly assess the risk. If you do not answer honestly they can repudiate the claim.
Calculate your life cover need → Download — Components of life cover →
Do you have enough disability cover?
Disability cover usually (but not exclusively) provides a lump sum on the total and permanent disability (TPD) of the insured. It is usually purchased as an adjunct to life cover.
The benefit is paid if you are unable to perform;
- Any occupation
- Your usual occupation
The insurer is less likely to pay the benefit if you are able to do "any" occupation and this could become an area of dispute.
Disability cover will provide support for you and your loved ones after your disability and ensure they do not suffer any financial hardship. How much do you need? This will depend on;
- Debts you may want to liquidate
- Education costs
- Medical costs
- Costs of rehabilitation
- Modifications to your home
- Living costs
- How much cover you already have
- How much government assistance you may get
You also need to consider what the insurer considers "Total and Permanent Disability" is. If you don't meet the definition they won't pay.
There are a number of comparison sites that will let you compare premiums and benefits. Like life cover, premiums can be stepped or level. Stepped premiums start lower than level premiums and increase with the insured’s age. Over time they will be more expensive than if a level premium had been chosen.
Calculate your disability cover need → Download — Components of disability cover →
Do I have enough income protection?
Income protection replaces the income you lose while unable to work due to sickness or injury.
Income protection usually pays out around 75% of your income before you became unable to work and is paid for a fixed period. This can be for (say) 2 years or till (say) age 65. naturally the longer the period of cover the higher the premium. Income is taxed in the same way your salary would have been taxed.
There is also a "waiting period" before the benefit starts and again the shorter the period the higher the premium. The most common waiting period is 90 days.
You superannuation fund usually carries income protection (salary continuance) and this will be taken into account. If you have more than one source of income protection in place, the insurer will reduce the benefit by the amounts received from other sources. Other sources that may be taken into account are;
- Regular payments from another insurance policy
- Regular payments from a superannuation plan
- Regular payments from workers compensation
- Regular payments from a motor accident claim
- Regular payments from claims made under state or federal legislation
There are a number of comparison sites that will let you compare premiums and benefits.
Calculate your financial exposure → Download — Income protection essentials →
Do I have enough critical Illness cover?
Critical Illness Cover pays a lump sum benefit if you are diagnosed with o a defined critical illness. Critical illnesses usually include cancer, stroke heart attack or coronary artery disease requiring by-pass surgery.
You may need to survive for a specified period (eg 30 days) after being diagnosed.
The pay-out will help with medical and lifestyle expenses while you’re under medical care.
The benefit is paid regardless of your ability to work.
Calculate your financial exposure → Download — Components of trauma cover →