When it comes to personal insurance there are various options and benefits available – and plenty of jargon to match. Spend two minutes reading this easy-to-digest summary of the options, and you’ll have all the relevant information you need to make informed decisions, and ensure your plan B is a winner.
Medical / Hospital Cover
This pays for specialists, tests and hospital / surgical costs.
With Medical / Hospital Cover you enjoy the peace of mind of knowing that you and your family can get prompt attention from your chosen medical provider. It means medical conditions can be treated promptly, at a convenient time and location, and with your choice of medical provider. Basically, it enables you to take control of your health.
This pays a lump sum in the event of death.
Insurance is about having a plan B, and life insurance is a funding mechanism to make sure that the family unit can carry on should the unforeseen happen. There is no right or wrong answer when it comes to the level of cover. However a good basic methodology to apply for life cover is enough to clear all your debt, plus a $100k for each dependent.
This pays a lump sum if you are diagnosed with one of the specified serious illnesses / conditions covered.
Unfortunately, critical illness is something none of us can afford to ignore. The stats show that two out of five people will suffer a critical illness before the age of 65 – and this is certainly the area where we have had the most amount of claims for our clients. Between the various companies the trauma policies available cover you for over 60 different conditions – although 90% of trauma cover claims made are associated with cancer, heart attacks and strokes.
Trauma cover provides a plan B in the form of a lump sum benefit paid on diagnosis. Again there is no right or wrong answer for the amount of cover, but we suggest at least two years salary based on the highest income. This means that in the event of a serious illness you would have at least two years income in the bank. Consequently, you can focus on recovery without worrying about where the next dollar is coming from.
Income Protection Cover / Mortgage Repayment Cover / Redundancy Cover
This pays a monthly benefit if you are unable to go to work due to any accident and / or illness.
In general there are two types of income protection policies available – Agreed Value Contracts and Indemnity Contracts (these include Loss of Earnings policies);
Agreed Value Contracts are based on a tiered ratio of between 55% – 62.5% of your current gross income. Please note the premiums for these types of policies are not tax deductible, but, any benefits received would be net / tax paid. All the financial underwriting is done upfront which provides certainty of outcome at time of claim.
Indemnity Contracts are based on 75% of your gross income. Please note that the premiums for this policy are tax deductible but any benefit received is also taxable. However, all financial underwriting is done at time of claim – which means that you have to prove your income at time of claim which is calculated as the lesser of 75% of your pre-disability income based on the average of your last two years taxable income or the sum assured.
The key difference is the fact that the financial underwriting for Agreed Value Contracts is done upfront, providing certainty of outcome at time of claim. So, there would be no impact if you were having a bad financial year and had to make a claim as the amount of cover has been agreed to upfront.
Taking the Agreed Value concept one stage further we can split any Income Protection Cover in to Income and Mortgage Repayment Cover. The underlying policy wordings – “definition of disability” – are the same but, with Mortgage Repayment Cover there are no offsets with ACC. Which means that if you are off work as a result of an accident you will have your mortgage paid for and should receive 80% of your income by way of ACC also.
With both of these benefits we have two opportunities to manipulate and reduce the premiums;
The Waiting Period: The waiting period works in a similar way to the excess on your car – the longer the waiting period the lower the risk for the insurance company. The options are 4, 8, 13, 26 and 52 weeks.
The Benefit Payment Period: The shorter the benefit payment (risk period) the lower the premiums. The options here are two or five years or to age 65.
Total Permanent Disability (TPD) Cover
This pays a lump sum if you are permanently disabled and unable to return to work again.
The money from a Total Permanent Disablement claim can help in many ways. For example, it can be used to repay loans, pay for house modifications, create an income-generating investment or cover health expenses. Should you suffer a serious and long-term disability this cover provides a plan B that takes away the immediate financial stress. Ideally it will leave you with at least two years income in the bank, so you can focus on recovery without worrying where the next dollar is coming from.
The most important thing to remember is … that there is no wrong or right answer when it comes to insurance. It is a matter of identifying your main concerns and priorities and embracing insurance as an affordable plan B that will help you manage the unforeseen.
If you want further explanation, clarification or advice about any type of personal insurance we’re here to help – so don’t hesitate to get in touch.