What Is Personal Insurance?
Personal insurance is the umbrella term for a number of different types of insurance products that provide cover for you as an individual. Each product seeks to provide different safeguards in the apprehension of potentially adverse life events. Such an event can include but is not limited to, injury, disability, loss of income, or death. These policies provide financial support to either you as the individual or your nominated beneficiaries, such as family. Each insurance provider will have an associated waiting period for their policies, as well as other stipulations and exclusions, so be sure to always read the individual product disclosure statement before choosing the best product for your financial situation.
What Are the Different Types of Personal Insurance in Australia?
Total & Permanent Disability Insurance
These policies provide insurance cover in the event of permanent disability, or terminal illness, that either prevents an individual from working to the same capacity, or ceases their ability to work at all. This is distinct from temporary injury, which would need to be covered under a separate trauma insurance policy (see below). If a TPD insurance claim is approved, the payout will usually take the form of a lump sum to the policy holder.
An injury, or critical illness, may not be so severe that it causes permanent disability, however, it may still drastically affect an individual’s ability to cover their essential costs. Trauma, or recovery, insurance products offer coverage for the policy holder as they rehabilitate, and receive the necessary medical treatment for their recuperation. An approved claim also usually takes the form of a lump sum to the policy holder, as compared to income insurance claims (see below), which are paid over time.
Income protection insurance policies provide a percentage of the policy holder’s lost income over time, if they’re rendered unable to work to the same capacity due to a level of disability. Many Australian superannuation fund management providers already offer income protection insurance products to their clients, so it is worth checking if you are already covered in some capacity.
In the event of the policy holder passing away, life insurance policies (also known as life cover) provide financial support to their nominated beneficiaries. Such beneficiaries are often family members, or loved ones, of the deceased, however they can be any nominated individual/s. There is an important distinction between life insurance products and accidental death insurance products. The latter requires the cause of death to be proven as an accident, whereas broader life insurance policies do not have such requirements.
Why Should I Consider Personal Insurance?
The old expression is it’s better to have something and not need it, than need it and not have it. In today’s high-cost domestic environment, personal insurance products are often an expense too far for Australian consumers. However, this leaves them potentially exposed in some of the most vulnerable situations they might encounter throughout life.
Recent research conducted by Rice Warner found that whilst Australian consumers were accounting for 92% of their life insurance needs, thanks in large part to their super fund provider, there was a significant underinsurance gap with regards to Total & Permanent Disability. Based upon their estimation of the basic insurance necessities, for the average citizen, Australians are only accounting for a mere 29% of TPD insurance needs.
The need for personal insurance products most certainly grows in tandem with any financial dependency on you as an individual. If others, such as family members or loved ones, look to you to cover their essential costs then any personal instability, such as unforeseen medical expenses, can have far-reaching, and devastating, consequences.
These insurances are also even more critical for business owners, as any type of disruption to your day-to-day business operations could be critical to long term financial success. The margins can be thin as business owners look to scale up appropriately, however if they overlook insurance premiums then they are perpetually at risk of a bad day creating a financial burden that they cannot overcome.
We recently learned of a client whose life insurance policy had been left unchanged for approximately five years, with the coverage amounting to a payout of up to $1 million in the event of their passing. At the time of purchase, that policy represented enough coverage to service their outstanding debts.
However, in the five year intermittent period since taking up that policy their debt had increased to a net total of $4.5 million, as a result of new housing loans – both Owner Occupier and Investment. The client in question did not realise that their life insurance policy was now outdated. Had their policy not changed their family, or beneficiaries, would have had extremely limited capabilities to service this outstanding debt.
We were able to alert our client to this significant coverage gap, and they updated their policy in order to ensure that the payout provided allows for their beneficiaries to be able to cover all necessary expenditure. It is crucial to ensure not only that you have the appropriate policy types in place, but also that the coverage is updated over time as you take on any additional liabilities or expenses.
At Equil Advisory, we’ve used our network and partners to assist many of our clients in being able to locate and engage with the most appropriate insurance products, and businesses, for their needs. If you’d like to find out more, call our team of experts today.