Life insurance is a blanket term covering a range of products. It can help provide for you and your dependants in the event that you are injured or become too sick to work; and can make sure your family is taken care of if you die.
Finding and comparing life insurance is easier than ever, but it can seem confusing at first, until you understand the industry jargon used to describe insurance products. Knowing what a few key terms mean can help you choose a policy that’s right for you.
Also known as death cover, this refers to products that pay a set sum of money on your death. This money goes to the people that you name on your policy, called the beneficiaries. When choosing life cover, you’ll need to consider any debts you have and how much your dependents might need to live on.
Income Protection Insurance
This refers to a policy that guarantees you an income if you are off work for a certain amount of time because you’re sick or injured. It’s also known as salary continuation. If your household depends on your income, this kind of life insurance can make sure that you all have enough to live on until you’re well enough to go back to work.
This protects you if you suffer a particular trauma. It’s also known as “critical illness” or “recovery” insurance. This kind of insurance is similar to income protection but pays you a set sum of money instead of a monthly income.
Total Permanent Disability
This insurance covers you in more serious situations than income protection or trauma cover. While those pay out if you suffer a serious illness or injury regardless of the prognosis, Total Permanent Disability (TPD) insurance only covers situations where you are rendered permanently unable to work — either in your normal occupation or any occupation, depending on the insurer’s definition.
These are items or situations that are not covered by your insurance policy. Examples can include self-inflicted injuries or unemployment that isn’t health-related.
These are restrictions on the amount that you can claim for on a policy. For example, an income protection policy might cover up to 75% of your salary but won’t rise above this limit.
This means letting your insurer know about certain things. When you take out life cover, you need to be completely honest about any past illnesses or injuries that you’ve suffered, past insurance claims, or anything else that might affect your policy. If you don’t disclose all the relevant information, your insurance company may deny a claim in the future.
These are the payments you make to your insurer in exchange for cover. Your life insurance premiums will depend on the level of cover and your personal circumstances. Premiums are generally lower for a young person who takes out life cover than for an older person. You can often buy life insurance via your super fund; this may be at a lower premium than buying similar cover directly from an insurer, and may offer fewer restrictions.
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