When it comes to purchasing personal insurance, how do you go about determining which policies best suit your needs and the needs of your family? There are several steps to follow in order to make prudent decisions regarding any type of insurance. Whether you are considering life insurance, income insurance, trauma insurance, or total permanent disability (TPD) insurance, having a good understanding of what each policy offers will make comparing insurance plans easier, and could save you money.
It’s always a good idea to first discuss your insurance needs and question with your financial planner. If you’re interested in reviewing different plans and insurance providers, you can always go online and visit the MultiCover.com.au website to compare policies and prices from your home computer.
Quite often the best way to understand how different types of insurance cover may apply to you individually is to review case studies and learn how real people have benefitted from different insurance plans. The following scenarios apply to four different types of policies: Life, Income, Trauma, and TPD.
Barbara was a 36-year-old administrative assistant working for a retail corporation. Barbara had been divorced for three years, had a mortgage, and was a single parent to her 12-year-old daughter Sadie. As a single parent, Barbara knew she was in a financially vulnerable position; she took the advice of a friend and consulted a financial advisor to find out what options were available to protect her, should something unexpected happen.
The advisor gave Barbara a variety of options and helped her put together a plan that would offer financial protection to her and Sadie if she were to be incapacitated due to illness, injury, or even death. The advisor took into consideration that Barbara placed a high priority on making sure Sadie was able to attend university after finishing high school.
Barbara compared insurance policies from a number of providers and chose to take out a life insurance policy that would pay $500,000, naming Sadie as her beneficiary. She added an income protection policy to protect herself and Sadie financially if she were to become unable to work temporarily, due to illness or injury.
One morning, three years after purchasing her insurance coverage, Barbara complained of a serious headache and called off work assuming she was harbouring a sinus infection. By evening she had lost consciousness and been rushed to hospital, where tests indicated she had experienced a brain haemorrhage. By midnight, Barbara had died.
Through a trust created by the insurance fund solicitor, Sadie received the $500,000, and is planning to study law at university.
Income Protection Insurance
George is self employed, earning $75,000 yearly on which he supports his wife Pam and their two children. Pam does not work outside the home, so she can be considered a dependant in this scenario. George has a comprehensive income protection policy that provides maximum benefits, for which he pays $14 weekly.
While walking down the road a year ago, George was involved in an accident in which his spine was injured. Temporarily disabled and in a wheelchair for more than two years, George was unable to return to the management of his business, which caused him to suffer a financial loss. But since George had compared insurance policies carefully when he set out to purchase income protection cover, George received monthly compensation for the loss of his income once he filed his claim.
George received 70 percent of his total pre-tax income, as well as disability rehabilitation compensation. The disability benefits provided George with the means to pay his mortgage and monthly household bills, and it allowed him to maintain the family’s lifestyle for most of the time he was unable to work. By purchasing a comprehensive income protection insurance policy, George was able to make sure his family did not suffer while he was temporarily unable to work due to his injuries.
Total and Permanent Disablement (TPD)
At 53, Rupert was a physician with a general medicine practice in the suburbs. Three years ago, Rupert embraced a lifelong desire to become a hobby farmer when he and his wife Mimi bought a 25-acre property in the country. The intention was to become a full time hobby farmer after six or seven more years practicing medicine. In the meantime, Rupert could spend weekends renovating the farm property, which included a run-down farmhouse, and preparing it to become their permanent home when the time came.
During one weekend renovation at the deteriorating farmhouse, Rupert accidentally dislodged a massive wooden beam which fell on him, causing head lacerations and concussion, fracturing his shoulder, three vertebrae and his left knee, and breaking three ribs.
In his years as a physician, Rupert had seen firsthand the effects of injury and illness on the financial and emotional stability of peoples’ lives, and had always made sure that he and Mimi had adequate insurance to protect themselves and their children. Years earlier, Rupert had worked closely with a financial advisor and had purchased a comprehensive insurance plan, which he kept updated over the years. When he and Mimi experienced major life changes, such as the births of their children and the purchase of an expensive home midway through his career, Rupert made sure their insurance reflected these changes.
When Rupert suffered the extensive injuries caused by the beam falling, he had a Total and Permanent Disablement (TPD) insutance policy worth $1.125 million with an “own occupation” definition. That designation meant that if his injuries were to impede his ability to return to work as a general practitioner, his claim for total and permanent disability would be approved. A few months after the accident, Rupert was advised by his doctor that he could never again work in medicine as a general practitioner, and his claim was paid.
Rupert’s injuries prevented him from retiring as a general practitioner under his own terms, but his TPD insurance policy paid for his medical and rehabilitative expenses, and enabled him and Mimi to hire an architect and contractors to complete the renovations on the farmhouse, so they were able to retire to their farm within the time frame they had planned. His children, who were still in high school at the time of the accident, were able to have their education costs funded through Rupert’s insurance policy as well.
Alex is an active 25-year-old man, a university graduate who enjoys playing as hard as he works. When Alex graduated in 2010, he landed a great job in the Human Resources Department of a large bank with a starting salary of $55,000.
Unmarried and enjoying his single status for the time being, Alex loves to travel and missed no opportunity when time and budget allowed. Alex’s monthly expenses included payments on an $8,000 car loan in addition to rent, groceries, and the usual cost of being social and enjoying the singles scenes. Alex was disciplined when it came to putting any leftover cash at the end of the month directly into savings.
Life insurance was not something Alex had ever given much thought to. Alex didn’t realise that more than 60 percent of Australians are disabled for more than one month during their working lives, and 25 percent suffer disabilities that keep them from working for more than three months. All Alex knew was that he was young, healthy, and had a modest savings account – not enough for a serious contingency plan, but he didn’t need think he needed one.
Driving home from work one night, Alex swerved to miss a dog on the road, sending his car off-road and head-on into a tree. Hospitalised for more than three months with leg and spinal injuries, Alex has many years of rehabilitation ahead. It only took a split second for Alex’s future to take a dramatic turn, leaving him unable to earn a living or care for himself. His medical bills emptied his savings long before they were all tallied.
How could Alex have planned ahead to avoid the dire circumstances in which he found himself?
Had Alex taken out Trauma Insurance before his accident, it would have, covered most (if not all) of the cost of his additional medical care; plus he may have been able to receive money to replace his lost income during the time he was unable to work. If he had become permanently unable to work, TPD insurance could have helped Alex maintain his financial independence, while also providing funds to help with modifications that may be necessary to accommodate mobility challenges if he were to be confined to a wheelchair, for instance.
No one is immune to illness or accidents, so a contingency plan in the form of insurance customised to protect you and your family can offer you the peace of mind that knows you and your family will be cared for if the unexpected happens.