Getting the Right Life Insurance Advice
Life Insurance in Australia is the sort of thing you might know you need, but it’s easy to forget about it or put it off. After all, you may not want to dwell too much on the situations where you might have to use it. When it comes to protecting your assets, lifestyle and loved ones, consider purchasing life insurance cover to help prepare for the unexpected.
The death, injury or illness of a family’s breadwinners can put a lot of financial and emotional strain on a family. Even the everyday costs like food, housing and bills tend to require a large percentage of your wages. Now imagine if you didn’t have an income to rely on. How would you cope financially and provide for your family?
It can be scary to think about but what’s even scarier is that most Australians don’t have a backup plan or any real protection over their salary. The truth is that 60% of Australians, regardless of age, will need to take a prolonged break from work at some point in their lives due to illness or injury1.
Furthermore, according to ASIC, a claim through a financial adviser is also around 50% more likely to be successfully claimed2. Our empathetic Wealth Protection Team know how hard it can be for clients to manage a serious illness or injury, so we are here to take away the financial burden and additional stress should you ever need to go through the claim process.
Life insurance is one of our specialities and is something we are incredibly passionate about – we believe it should form an integral part of your overall wealth management plan.
Do I Need Life Insurance?
Life insurance products are complex and need to be tailored to each person and their circumstances to be effective. There’s not a ‘one-size fits all’ approach to selecting insurance policies.
A customised combination of insurance, including Life, Total and Permanent Disability (TPD), Trauma (or Critical Illness), and Income Protection can minimise the financial impact on you (and your family) if ever a claim should be made.
Understanding the different types of life insurance available, how they work together, how policies differ and how they pay out a claim is essential. Expert life insurance advice in this area is crucial to ensure you get appropriate cover.
Types of Life Insurance
Insurance (Term Life Insurance)
Life insurance (also known as term life insurance) is intended to pay your nominated beneficiary a lump sum benefit that comes into effect when you pass away (or some policies will pay in advance if you become terminally ill).
Financially dependent individuals, such as people with a spouse, children or elderly parents, ideally get death cover to cover their financial obligations as a safety net. If the life insured should pass away, these policies can be used to continue living the life you had planned.
Personal life insurance premiums are not tax-deductible. However, if a policy is owned inside super, contributions that are made from the super fund to the life insurance policy can be deductible for tax puposes.
Total and Permanent Disability Insurance
Total and permanent disability cover, often abbreviated as TPD, may protect you against the risk of never being able to work again as a result of becoming permanently disabled through accident, injury or illness.
TPD insurance is available in two forms:
- Own occupation: covers your inability to work in your usual job or your field of employment.
- Any occupation: covers you if you are unable to return to employment in any job or role that is suited to your education and experience.
Successful TPD claims pay a lump sum which you can use to maintain your lifestyle during recovery, make alterations to your home, access specialist treatment, keep making loan repayments, stay on top of household expenses, and ensure your loved ones do not need to make sacrifices should you become disabled.
If you hold TPD cover outside of super fund, the premiums are typically not deductible from your taxes.
Trauma Insurance (Critical Illness Cover)
Trauma cover insures you should you experience a serious medical condition, for example, heart attack, stroke or cancer. Your insurer should indicate definitions of each condition in the policy since insurers categorise these disorders differently.
People get trauma cover to alleviate financial stress in the case of a serious health emergency. Experiencing a severe illness or injury entails not only hospitalisation; it involves spending lots of money on other medical costs which is not fully covered by health insurance, for example, rehabilitation therapy, medication, ongoing doctor appointments, plus more.
With a trauma insurance policy, your lump sum payment means that you can rest easy, knowing that financial expenses will not be as heavy – and you would not want experience financial hardship or rely on financial support from family.
Trauma premiums are generally not tax-deductible. One exception is where the cover is for a business purpose.
Income Protection Insurance
Without a regular salary or wages, most people would struggle to maintain their current lifestyle, let alone pay for additional medical expenses because of an illness or injury.
If a severe sickness, injury or accident stops you from working for a prolonged time, income protection cover (also known as salary continuation insurance) replaces part of your income so that you can afford to keep up with your normal financial commitments and pay for living expenses, such as groceries, mortgage repayments or rent, and utilities. You usually receive a monthly benefit that is paid until you can return to work.
Note that this does not cover you if you quit or are fired from your job. Pregnancy, substance abuse, or injury and sickness caused by substance abuse are also not covered by this type of policy.
Generally speaking, the premiums are deductible from your taxes. However, you need to pay tax on benefits paid.
The Basics of Income Protection:
- Waiting periods: can span from 30 days to 2 years.
- Benefit Periods: can be a fixed-term of two or five years, or up to a specific age (maximum age is 65).
- Benefit Amount: you can apply for up to 70% of your pre-tax income – plus Super Guarantee which is paid directly to your nominated super fund.
Applying for a Life Insurance Policy
It can be difficult to understand what life insurance solutions you may need to best protect you and your family. At Coastal Advice Group, our Wealth Protection Team of experienced specialists have comprehensive knowledge of the life insurance policies on the market, how to structure them, how they differ from each other, and each insurer’s application and claims process.
We can thoroughly assess the life insurance coverage you have and determine what combination is adequate for your personal circumstances. Then, using our comprehensive and in-depth product knowledge, we’ll compare life insurance quotes and the eligibility criteria to select those with benefits most appropriate to your needs.
Our team will help you complete your life insurance applications, this includes providing personal details, your medical history, answering health and lifestyle questions, and providing information about your job and income (depending on the cover you are applying for).
Once the applications are submitted, they are sent to the insurer’s underwriters to be assessed – at which point your application is either approved or declined. If the application is approved, life insurance policy documents are issued; which you should store in a safe place as part of your estate planning.
Frequently Asked Questions About Life Insurance
It’s never too early to start considering life insurance, in fact, the earlier the better. Like all home and car insurances, life insurance policies need to be in place before you need to use them – whether you are 25 or 55, it isn’t too late.
Age, gender and health are assessed when taking out a policy, so as younger people are typically in better health the costs will be less and more beneficial policy terms will be available to you. As you get older your policies will cost more.
It can be very confusing to determine how much coverage you need to maintain financial security for you and your loved ones. It is best to speak to a qualified Financial Adviser who will determine an appropriate level of cover based on your:
- Family situation
- Personal circumstances
- Employment and income
- Current assets
- Debt obligations
- Living expenses
- Cost to fund medical expenses in case of accident, injury or illness
- Important personal costs, e.g. private school fees
To ensure you select suitable life insurance policies, a comprehensive assessment of your circumstances should be undertaken by a qualified financial adviser.
An independent adviser can compare life insurance policies to determine those that would be relevant to your needs. They understand the fine print and are supported by research and legal teams who assess every product. Policies can be structured to ensure premiums remain affordable and potentially count towards your deductions.
If you have a pre-existing condition, it is important to let your financial adviser know upfront so that they can incorporate this information into their research. There are a lot of life insurance products in the Australian market, so depending on the insurer, you may still be able to get a favourable level of cover with a premium loading or health exclusions attached.
Stepped premiums may be cheaper when the policy is issued but increase as you age for the same level of cover. It pays to do the sums and consider what the total cost of the premiums will be over five years or so. This may be a good option for new business owners or others who don’t have a lot of disposable income but expect to earn more over time.
Level premiums are not affected by your age but are generally more expensive than stepped premiums in the beginning. If you want to control your costs over time and intend to hold the insurance for a long period, a level premium may be less expensive in the long term. Nevertheless, the premiums may be affected by inflation or be adjusted by the insurer.
You may also be able to have a combination of stepped and level premiums based on your circumstances and policy structure. The important thing is to review your premium structures regularly with your adviser.
When you apply for income protection, you typically choose whether to get an indemnity or agreed value policy. Your benefit is computed based on your income when you choose an indemnity policy; whereas you will receive fixed monthly payments under an agreed value policy.
When choosing between these types of income protection insurance, your income stability is the main thing to consider. If it isn’t likely to change, you could choose the indemnity option. If you freelance or have a fluctuating income, the agreed value option could provide more security.
Life, TPD and Income Protection can be held inside and/or outside your superannuation fund. Owning the cover inside your super means it is less likely to affect your cash flow as premiums are paid by your superannuation, however, there can be limitations to the cover. Insurance outside of your superannuation fund will need to be absorbed by your cash flow but can come with a greater choice of cover and other benefits.
The best-case scenario for any life insurance cover is that you will never have to make a claim. If you do, though, it is best to contact your Financial Adviser as soon as possible so they can commence liaising with your insurer on your behalf.
Here are things you usually need to provide to your insurer:
- Completed claim forms
- Medical report/s
- Identification like a passport or driver’s licence
- Evidence of financial situation like payslips or tax returns
Any claims must meet the criteria of your policy (this can be found in the policy’s product disclosure statement). Once your claim has been assessed, it will either be approved and payment released to you or declined.
Should you ever need to make a claim, a dedicated claims specialist from Coastal Advice Group will manage the whole claims process on your behalf, working hard to smooth the way and reduce the stress on you and your loved ones.
Many people think that Workers’ Compensation and Income Protection are the same, but this is not the case.
The key difference is that income protection covers you for injuries and illnesses both inside and outside of work while the former only covers you for direct work-related conditions.
Accidents happen every day and when you consider that 75% of accidents occur outside of work, income protection seems like the safer and more beneficial option.