When it comes to the financial security of you and your family, life insurance is an invaluable tool for Australians in the event of death, disability, or other unexpected life events. But not all life insurance policies are created equal.
Understanding the different types of life insurance available and how they work is an important part of making sure you’re getting the coverage you need.
Keep reading to learn more about the different types of life insurance and how to choose the right option for you.
Life Cover
One of the most common types of life insurance is called life cover or term life insurance. This type of insurance provides financial security to your beneficiaries in the event of your unexpected death.
Essentially, life cover ensures that your loved ones will continue to receive financial support if you are no longer there to provide for them.
This type of insurance cover is designed to provide financial protection for a set period of time, typically 10 to 30 years. It pays a lump sum benefit upon death or diagnosis of a terminal illness.
Life cover policies usually come with a fixed sum insured, which you choose when you take out the policy. The sum insured is the amount of money that will be paid out to your beneficiaries upon your death.
The lump sum payment can be used for numerous items, such as to cover funeral expenses, pay off debts, or provide supplemental income. The premiums for life cover typically increase with age and are determined based on your health status, lifestyle, and occupation.
Some policies may also include additional benefits, such as funeral cover or terminal illness cover.
Income Protection
Income protection is a type of life insurance that is designed to protect your income in case you are unable to work.
It provides a regular income to the policyholder in the event of an illness, injury, or disability that prevents them from earning an income.
Income protection is an essential cover for those who are self-employed or who do not have access to sick leave, workers’ compensation, or long-term disability insurance through their employer.
Generally, the benefit an individual receives will be a proportion of their income, or up to 80%, for a certain period of time. Most policies also include an additional lump sum benefit if an individual is permanently disabled.
Income protection policies also usually include a waiting period, which is the length of time that must pass before the policy begins to pay out. This can range from 30 days up to two years and will depend on the individual’s circumstances.
Trauma Cover
Trauma cover is designed specifically for those who have suffered a major illness or injury that has resulted in a significant impact on their life.
This type of policy provides a lump sum payment that can be used to cover medical expenses, rehabilitation costs, and any other necessary expenses that arise as a result of the trauma.
Commonly covered conditions include cancer, stroke, heart attack, major organ transplants, and permanent disability.
Unlike income protection insurance, which provides a replacement income until the insured person is able to return to work, trauma cover provides a lump sum payment that can be used for any purpose.
It is important to understand that not all traumatic events are covered by a trauma policy. Pre-existing conditions, self-inflicted injuries, and minor injuries are usually not covered by trauma policies.
Total and Permanent Disability Cover
Total and permanent disability (TPD) cover is designed to provide financial protection for individuals and families in the event that the insured person becomes totally and permanently disabled.
TPD insurance provides a lump sum payment that can be used to cover ongoing medical expenses, rehabilitation, and other costs associated with life-changing injuries.
In Australia, TPD insurance typically forms part of a package of life insurance coverages, which may also include death and income protection insurance.
The policy will usually provide a payment if the insured is permanently and totally disabled, either physically or mentally. The amount of coverage will depend on the insurance policy and can range from a few thousand dollars up to a few hundred thousand dollars.
Overall, understanding the different types of life insurance coverage available in Australia is essential for individuals who wish to financially protect themselves and their loved ones.
Taking the time to learn about life insurance can help you make informed decisions that can greatly benefit you and your family in the long run.
