Types of Risk Insurance
Total & Permanent Disability
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policy pays a specified amount of money to the insured’s beneficiaries or estate as long as the insured passes away while their policy is still current. In exchange for the Life Insurance Policy, you must pay monthly or yearly premiums to the insurance company, such as Tower, AXA, Asteron etc.
Most standard Life Insurance Policies expire at the age of 99; however each life insurance company may have slightly different definitions.
How much Life Insurnace should I take?
Determining how much life insurance you need is important as this is the amount that will enable your beneficiaries to live a lifestyle comparable to now after you pass away. It’s is the amount paid upon your death, and is decided when the policy is taken out. An easy calculation is to base the policy on 10 times your annual salary or depending on your financial situation at least the total amount of your liabilities. Talk to us and we’ll be more than happy assess your current financial situation in order to determine the appropriate amount of Life cover for you, taking into consideration:
- Debts – mortgage, credit cards, loans.
- Expenses – daily living expenses and future expenses like education for your children.
- Ongoing income needs of your family.
The question you need to ask yourself is: ‘If you failed to take out a Life Insurance Policy or failed to take out a Life Insurance Policy for the appropriate amount, would your family be able to financially cope if you weren’t there?
Total & Permanent Disability (TPD) Insurance
Total & Permanent Disability Insurance provides a lump sum in the event that the person insured becomes totally or permanently disabled, unlike Life Insurance it is payable without the insured person actually dieing. It is designed to help discharge any outstanding debts you might have as well as help with your ongoing living expenses and help pay for medical costs while you are disabled.
The difference between Total & Permanent Disability Insurance and Income Protection Insurance
The main difference between TPD and income protection insurance is that TPD pays out a lump sum, whereas Income Protection (IP) provides an income on the basis of you being unable to do your own job for a specified waiting period and until you can go back to work or until the end of your benefit period.
Types of Total & Permanent Disability Insurance
Currently in Australia there are four main types of total and permanent disability insurance available. These include:
- Own occupation – this is where the insured is unlikely to ever work in their own occupation for the rest of their life.
- Any occupation – this is where the insured is unlikely to work in their profession, business or similar occupation
- Home duties – where the insured is unable to engage in any normal domestic duties for a continuous period of at least three months.
- Modified – where the insured is permanently and totally unable to perform without physical help from someone else or suffers cognitive impairment requiring permanent and constant supervision and has been disabled for 3 preceding months and will continue to be disabled in the future.
Income Protection as the name suggests is a form that replaces your income in the event that you are unable to work for an extended period of time. It pays up to 75% of your average annual income, on a monthly basis and is designed to cover your living expenses if you are unable to work due to sickness or injury
Income Protection has waiting and benefit periods. The waiting period refers to the number of days before the commencement of income protection cover benefits, normally 14, 30, 90 days or possibly 2, 3 or 5 years after the claim is lodged.
If you have sufficient savings to last one or two years, you may choose to have cover that only starts after say the first two years, bearing in mind the longer the waiting period, the cheaper the premiums.
Why take out Income Protection
Imagine trying to pay your mortgage or other debts if you were off work for an extended period of time due to sickness or injury. The bottom line is you simply couldn’t, with the end result being you’d lose your house.
You can’t rely on sick leave as this normally only last a few weeks at best, so how would you pay for the simple things in life such as food, bills, school fees etc.
Income protection gives you the peace of mind, that should anything happen and you can’t work for a period of time at least you can focus on your recovery knowing that your bills and mortgage repayments will be taken care of
Business Insurance or Keyman Insurance as it is commonly referred to is a type of Life Insurance Policy which is set up to protect your business. A Business Insurance policy can cover the ‘key person/s’ for a combination of all or any of the four major types of Risk Insurance covers ie:
- Life insurance
- Total and Permanent Disability insurance
- Critical Illness/Trauma Insurance
- Income Protection insurance
Business Insurance as the name suggests is designed to protect the business, not the individual. Whatever you’re business, you should consider looking at taking out a ‘Keyman Insurance Policy’ on the key person/s or employees within the business.
Just imagine the consequences if any of the following situations were to occur:
- You have a Business Loan guaranteed by one of the Directors and he/she dies;
- A key business employee suddenly suffers a traumatic event (such as cancer) and is unable to work, having to take 6 months off work – how would you replace that level of expertise to keep your business running?
- A joint business partner dies & the company shares are passed onto a former business partners’ estate. The former business partner now owns this part of the business & may have possibly become a decision maker.
- A key income producing Executive Director dies or becomes disabled;
The amount of Keyman Insurance cover really depends on the business and the purpose of the policy and may be dependant on the tax effectiveness of different structures. There really is no quick fit but a general rule is to start with the four key Risk Insurance areas listed above and then tailor the cover to cover your business.