“Life insurance” generally refers to life cover or death cover, a type of insurance policy that pays a certain amount of money to your beneficiaries in the event of your death. However, it’s a broad umbrella term that includes concepts such as trauma cover and income protection. Some forms of life insurance pay out in the event that you’re permanently disabled, or protect your income if you lose your job due to injury or ill-health.
Life insurance can give you peace of mind, knowing that your dependents and loved ones will be taken care of if you can’t be there for them anymore.
Term Life Insurance
Called term life insurance in Australia, “life cover” is an insurance policy that pays a sum of money if the insured person should die. The money is paid to the people that you nominate as beneficiaries on your policy. You can purchase life cover though your superannuation fund, or directly from an insurance provider.
When choosing which life cover product is right for you, you will need to think about all of your debts and how much would be required to pay them off. You also need to consider how much money your family will need to live reasonably comfortably. If you have children, you’ll need to factor in their childcare costs or education expenses, which the surviving parent or other guardian will have to meet.
Income Protection Insurance
If you are injured or become sick, you may face an extended period unable to work. This can dramatically affect the amount of money coming into your family. Income protection exists to cover this kind of eventuality. This is a type of insurance that pays out in the event of a serious injury or illness, replacing some of your lost earnings and preventing you and your family from suffering too much financially.
Income protection won’t cover all of your lost wages; the typical maximum is 75% of your gross wages, and the amount may be less depending on your policy. There’s usually a maximum time period — two years, for example, or up until a particular age.
Other Forms of Financial Protection
If your illness or injury is not a temporary situation, income protection insurance may not meet all of your needs. Total and permanent disability (TPD) cover exists to help cushion the blow if you are permanently unable to resume any employment. TPD coverage can help clear your existing debts, pay for your rehabilitation and help with your future cost of living. Note that TPD coverage only pays out if you are completely incapacitated and have no prospect of a meaningful recovery. It doesn’t cover temporary disability, or permanent changes in your ability level that are minimal enough to allow you to keep working.
Trauma cover does not require you to be permanently or completely incapacitated. It pays out if you suffer a particular injury or illness, one that has a major effect on your life. For example, you could take out a policy which protects you in the even you suffer a stroke or are diagnosed with cancer. Trauma cover can help with private medical costs that aren’t covered by your health insurance, as well as rehabilitation and adaptations to your home. It can also help take care of your existing debts and supply you with an income stream.
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