A good life insurance policy is one of the best ways to ensure your family is protected financially if something unfortunate happens to you. In Australia there is a wide variety of life insurance types each covering one or more circumstances that lead to loss of ability to earn a living. We are going to have a look at five of these and see different ways that insurers combine them to provide customized offerings for people in different situations.
Life cover
Also known by several other names such as “death cover” or “term life insurance,” this is perhaps the package that most people think of when they talk about life insurance. Life cover pays out in lump sum or regular installments to one or more beneficiaries when the payer dies. When a person takes out a life cover, they pay premiums for a predetermined length of time known as the term. If you die during the term of the cover, your nominated beneficiaries receive the worth of the insurance in lump sum. For example, if you have a 15-year term $300,000 insurance policy and you die during the 11th year of the term, your family will receive $300,000 which can go towards funeral expenses, mortgage payments and household spending. In some cases, the insurer may pay out early in case the payer is diagnosed with a terminal illness.
Permanent disability cover
This type of life insurance is meant to protect you financially in case you encounter a permanent disability that prevents you from being able to continue working. Typically, the insurer offers two forms of coverage under this cover. The first form requires that your permanent disability prevents you from ever working in any type of job while the second type pays out if you are unable to return to a specific occupation. This cover may allow you to cover your medical costs, service household bills and debt or finance home modifications to make you more comfortable.
Income loss cover
Income loss protects you in the event that you lose your job or are unable to work for a number of reasons such as injury, sickness or other inconvenience. The insurer will give you a portion of your wages for a pre-agreed period of time, until recovery, or up to a given age. Usually, the insurer pays between 75 and 80 percent of the claimant’s income during the time when they are unable to work. This is meant to incentivize the beneficiary to make steps to return to employment rather than relying fully on checks from the insurer. In some cases, known as indemnity benefit, the insurer may give the payer a 100% of the amount that they were earning at the time of the claim.
Trauma cover
The trauma cover is aimed at giving you protection if you are diagnosed with a serious illness such as cancer, heart attack or a stroke. This type of life insurance is also known as recovery insurance or critical illness cover. Trauma cover helps the claimant to cover their medical costs or maintain a stable income stream during the recovery process. It is especially handy when Medicaid or private health insurance refuses to cover these conditions. The amount of money paid out by the insurer is dependent on the severity of the condition suffered by the claimant. For example, a stroke will usually get you more money than a broken limb.
Accidental death cover
An accidental death cover will pay your family or other beneficiary a lump sum amount in case you die from an artificial cause such as vehicular accident, drug abuse and in some cases suicide. Generally, when a claim is made, the insurer will vet the nature of the accident to avoid paying for accidents caused by illegal activities or extreme negligence. Acts of war are also not covered under this type of insurance. Some insurers offer more comprehensive packages known as “accidental death cover riders” for people who work in extremely hazardous conditions such as construction sites, race tracks or mines. This usually involves an extra benefit over the basic package that is paid in addition to a regular life cover. If for example the person has a $400,000 life cover accompanied by a $300,000 accidental death benefit rider, his beneficiaries will receive $400,000 if he dies from a heart attack and $700,000 if he dies from falling debris at a construction site.
Resources:
1. https://www.anz.com.au/personal/insurance/guides-to-insurance/different-types-of-life-insurance/
2. https://www.moneymanagement.com.au/features/tools-guides/life-insurance-financial-protection-all-australians
3. https://www.canstar.com.au/life-insurance/types-life-insurance-australia/
4. http://www.lifewise.org.au/insurance-101/how-does-life-insurance-work
5. https://www.moneysmart.gov.au/insurance/life-insurance
6. https://www.finder.com.au/types-of-life-insurance
