Why is personal insurance so important?
Ensuring that you take a considered approach to personal insurance is critical. Insurance should provide you with the peace of mind that, should the worst happen, the financial stress that comes afterwards is removed. Most people have simple cover provided by their Superannuation and unfortunately, most have little understanding about what they’re actually paying for.
In our role as financial planners we understand the costs involved with personal insurances. We also understand the vital role that insurances can play in keeping you afloat when a financial safety net is required. Essentially, while the possibility of claiming may seem slight we need to consider the implications if things do go wrong.
So what cover is available, and how does it work?
The income you earn is likely to be your biggest asset, yet so many disregard the need for income protection because the possibility of needing cover seems so remote. Yet, we never hesitate to insure our car and it is likely about 1/50thin value compared to your future earnings.
Typically, income protection covers you for up to 75% of your employment income if you are unable to work due to illness or injury. Income protection policies have a ‘waiting period’. This is the period you need to be unable to work before being eligibleto claim. The primary consideration here is how long can you live off your current savings. This is an especially important element for contractors, who typically won’t have access to sick leave or annual leave.
Income protection also has a benefit period. This is the length of time that the insurer will replace your salary. Many basic insurance policies will limit the benefit period to 2 years. If your illness or injury prohibits you working beyond that period the income stops….. if you still can’t work, then what happens?
Total & Permanent Disablement Insurance (TPD)
TPD pays you a lump sum if you’re unable to work ever againdue to illness or injury. Insurers will have two potential definitions for workers:
- You can’t work again in ANY occupation
- You can’t work again in your OWN occupation.
This cover is often funded in Super and ‘linked’ to Life cover. In this instance if you claim from your TPD cover you also reduce your Life cover. The benefit is added to your Superannuation balance then claimed. Though if you are seeking ‘Own’ occupation TPD cover, then we need to be prepared to have some out of pocket expenses as this policy cannot be held within Super.
Life insurance is the simplest of cover, if you pass away a lump sum is paid to your nominated beneficiaries or estate. It should be used to ensure your family have access to a lump sum to carry on in your absence.
Trauma Insurance (sometimes called Critical Illness)
Trauma cover pays you a lump sum on diagnosis of a serious illness such as cancer, stroke or major heart problems. It’s paid to you directly on diagnosis and should be sufficient to cover medical bills, relocation expenses, therapy and to remove any short-term debt such as credit cards, personal loans or car loans.
As thousands of people are diagnosed with these conditions every day this cover is the most likely to be used. In Australia 2 out 3 people will suffer a Trauma event before age 65, as such, it is one of the more expensive covers and best acquired whilst you are younger. Unlike Income Protection, it is not tax deductible and can’t be funded from Super. It can however be a vital lifeline in times where money shouldn’t be causing additional stress.
CXC Financial Planners can provide advice on a wide range of insurances, provided by Australia’s largest insurers. We can help you navigate the complexity and ensure the financial risk in your life is reduced. We provide advice on appropriate insurance, assist you when applying for the cover and work to minimise the time and effort required with insurance applications.
Our team help you to answer and solve the most common risk related questions, such as:
- How much insurance do I actually need?
- Do I have quality cover?
- Are the premiums I pay competitive, or am I paying too much?
- Can the insurer change the terms of my policy without my agreeance?
- In the event of a claim how is the benefit taxed? How much do I end up with?
- Are the premiums I pay tax deductible?
- In the event of a claim, where is the benefit paid?
- If I have a pre-existing condition is the insurance valid?
- Should I fund my cover inside or outside Super?
- Are my insurances linked, does a claim to one policy reduce the cover in the other?
While every attempt has been made to ensure the accuracy of this information at the time of compilation, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by CXC Financial Partners, its officers, employees, agents or representatives.
All contents presented within this document are not to be construed as personal financial advice, taxation advice, a recommendation or an offer or invitation to buy, sell or hold a financial product. It is for general informational purposes only. These indicative investment fees, comparisons and performance figures have been prepared without considering any personal objectives, financial situation or needs, and you should consider its appropriateness to your circumstances before acting on any of these representations.
Are youready to take control of your financial future? If you answered yes, then we’re ready to assist. With access to in-house experts in property, mortgages, tax and accounting, our holistic approach has your financial well-being covered. We’ll help you define your goals and prioritise what’s most important for your future and keep you on track.
If you would like to take control and activate your prosperity, contact our team on 1300 925 081 or via our contact form for a no obligation and confidential discussion.