The common belief that “it won’t happen to me” often results in many people having a sound plan for wealth creation, but not an adequate plan to protect the very thing that generates the wealth – themselves!

How death, disability or illness affects your ability (or your family’s ability) to realise your lifestyle goals and objectives will depend on the wealth protection strategy you have in place.

By taking out insurance you can provide some financial protection for your family’s personal needs. Insurance can be structured to provide for such things as the repayment of your debts upon death or disability, financial assistance for dependants, and protection against the loss of income.

Income Protection Insurance

Income protection insurance (also known as salary continuance) is designed to provide a regular income in the event that you are unable to work due to sickness or injury. Generally, income protection insurance provides a regular income during a period of disablement for up to a pre-determined and agreed benefit period. The benefit amount payable is up to 75% of your income.

Factors to be aware of:

• The shorter the waiting period and the longer the benefit payment period, the more the insurance will cost.
• Income protection insurance is important when borrowing to invest (gearing), as it can help meet interest payments if you are unable to work due to illness or injury.
• You should ensure your insurance cover is adequate for your needs. Under-insurance can present a serious problem. 

Life Insurance

Life insurance can be critical for a secure financial future. In simple terms, you insure yourself for a particular amount, and in the unfortunate event that you die, the insurer pays that amount.

The lump sum payment can be used to help with the repayment of debts, the covering of future needs (for example, the cost of children’s education or long-term care), and providing funds for investment to generate an income, or to keep your business afloat.

Life insurance may be obtained via a superannuation fund.

Factors to be aware of: 

• You should ensure your insurance cover is adequate for your needs. Under-insurance can present a serious problem. 
• Changes in your personal circumstances (i.e. taking on additional debt) often necessitate higher insurance levels. 
• Death benefits received via a superannuation policy may be taxed.

Total and Permanent Disability Insurance

Total and Permanent Disability (TPD) insurance will provide a lump sum payment should you suffer an illness or injury which totally and permanently prevents you from working again.

There are broadly two main definitions of Total and Permanent Disability:

• Own Occupation – The insured must show that they have a total and permanent disability that prevents them from working in their own occupation which they disclosed when applying for this cover.

“Own Occupation” is a more liberal definition of disability, because even if you can work in another occupation, you may still be eligible to receive disability benefits. Because it is relatively easy to qualify for benefits under this definition of disability, insurance companies are limiting the availability of this type of coverage. Own occupation coverage is often more expensive, and may only be available to individuals who have a clean medical history and work in a relatively risk-free occupation.

• Any Occupation – The insured must show that they are totally and permanently disabled and unable to work in their usual, or any other occupation for which they are reasonably suited by their education, training or experience.

“Any Occupation” is often the cheaper option, however it can be more difficult to meet the requirements of this type of disability definition.

Some insurers have a third definition available to clients –a “homemaker” definition. Payment of benefits under this definition would be based on the proviso that the insured, through sickness or injury, is unable to do any normal physical domestic duties and will never be able to do so again.

Factors to be aware of: 

• You should ensure your insurance cover is adequate for your needs. Under-insurance can present a serious problem. 
• Changes in your personal circumstances (i.e., taking on additional debt) often necessitate higher insurance levels. 
• There may be taxation consequences where a disability lump sum superannuation payout is made.

Critical Illness Insurance

Critical illness insurance (also known as trauma insurance) provides a lump sum benefit in the event that the life insured suffers a “critical condition” as defined by the insurance provider. Critical illness cover is designed to help you financially recover from a trauma or crisis, such as a heart attack, stroke, cancer or other life threatening conditions.

Factors to be aware of :

• You should ensure your insurance cover is adequate for your needs. Under-insurance can present a serious problem. 
• Critical illness cover is generally not held within super. However this insurance type may be connected with other insurances that are held in super, which can reduce the administration and costs of implementing the insurances via separate policies.