Firstly, let's clarify the main types of Life Insurances:
Life Insurance: If you pass away, your family/beneficiaries receive the insurance lump sum.
Total and Permanent Disability (TPD) Insurance: If two doctors sign off that you are TPD and unlikely/unable to work again, you are paid a lump sum.
Trauma (also called Critical) Insurance: You are paid a lump sum if you develop a specified critical illness condition (for instance, cancer, a heart attack, a stroke and many more).
Income Protection Insurance: You are paid a monthly benefit for as long as you are medical unfit to return to work, up until the benefit period expiry duration.
There are typically two ways to get insurance:
Group/default insurance: This is commonly provided to you automatically within your superannuation fund or sometimes by your employer.
Underwritten insurance: This involves you applying for insurance coverage and often answering medical questions from the insurer.
Below are the pros and cons of the different types of insurance:
| Default/Group Insurance | Underwritten Insurance |
Pros | · This cover typically does not require you to answer health questions upfront so it may be advantageous if you have had significant past health conditions.
| · The standard insurance is typically cheaper than default/group insurance.
· Underwritten cover offers many favourable policy features, things like ‘own’ occupation TPD, critical illness insurance and income protection paid personally (which can be tax deductible). |
Cons | · The cover is generally more expensive than underwritten insurance at standard terms.
· The default cover levels are typically capped at relatively low sums insured. For instance, if you ask your super fund for more insurance than you have received by default you will be expected to answer medical questions.
· The cover is typically of lower quality than underwritten insurance.
· You cannot apply for many of the features of underwritten insurance. | · As your health is being assessed as part of the application, these policies can have loadings, exclusions or you may be declined insurance cover if your conditions are serious enough.
· The process is more time consuming than automatically receiving default insurance. For instance, you may be required to have a blood test as part of the application process. |
So, what role does a Financial Planner play? A Financial Planner who offers life insurance services (such as us at Source Wealth) help in the following ways:
We calculate how much Life Insurance, Total & Permanent Disability, Income Protection and Trauma insurance that you need based on your individual variables such as age, income level, mortgage size and number of children.
We analyse the cost and quality of your current insurer against a range of insurers to find you the best product.
If you have any pre-existing health conditions, we can source the best insurer and structure for you.
If you ever need to make a claim, we will support you through the process and act as your representative in processing the claim with the insurer.
If you need help setting up the optimal life insurance structure for you, you can book in an obligation free chat with us!
Comments