By AMP Financial Planner Stephen Schill *

A recent report into life insurance serves as a wake-up call to the thousands of Australians adopting the ‘it’ll never happen to me’ approach.

The Rice Warner Actuaries’ report Underinsurance in Australia showed that awareness and uptake of Income Protection and Total and Permanent Disability (TPD) insurance is extremely low.

The report found that only 22 per cent of Australians have adequate TPD insurance and 24 per cent have adequate Income Protection cover. 

It also seems life insurance is the best understood form of personal insurance with 83 per cent of eligible Australians having their average needs met, according to the report. 

While most Australians appreciate the benefits of car insurance or health insurance, when it comes to insurance that protects their personal wealth it’s a different story.

The old adage “ignorance is bliss” certainly doesn’t apply when things don’t go to plan – there’s nothing blissful about financial stress during a personal crisis. 

Instead you should be planning for how you’d cope financially if you became ill or injured.  Here is the lowdown on four basic types of insurances that protect personal wealth:

1. Death cover
   Also known as life insurance, death cover provides a lump sum payment to your beneficiary upon your death or to you if you are diagnosed with a terminal illness.Many people have this insurance within their superannuation with the common expectation of providing enough to pay out debts and meet other expenses such as childrens education.
2. TPD cover
   This cover provides a lump sum payable when a person becomes totally and permanently disabled and as a result are unable to work in an occupation for which they are reasonably suited by education, training or experience.Insurers have differing definitions of what constitutes a total and permanent disability so it is extremely important to read and understand the fine print of the contract before signing up.
3. Income protection
   Unlike TPD which pays out a lump sum, income protection provides you with regular income when you are unable to do your job due to illness or an accident.It is designed to replace up to 75 per cent of your income after a specific waiting period and it will pay monthly for a specific period of time. 
4. Trauma insurance
   Trauma insurance provides a lump sum payment on diagnosis of certain medical conditions or events after a qualifying period. The types of medical conditions it covers differs from insurer to insurer, but typically includes the “big four” conditionsof cancer, heart attack, stroke, and coronary by-pass surgeryDepending on the comprehensiveness of the contract you elect you could also be covered for other conditions such as head trauma, multiple sclerosis and paralysis. 

Some insurers will also provide ‘children’s cover’ within your policy (for an additional premium) which can help support you with the cost of caring for your child in the event they become seriously ill.

Again, specifically what is covered will be described in the contract so it pays to read this carefully before signing up.

Which one is right for me?
It can be confusing to work out which type of insurance is right for you.  When considering which insurance is best, think realistically about what will happen to your family, lifestyle and assets if you lost the ability to earn money because of illness or injury.  Begin by asking yourself some hard questions such as:

•  How long could I pay the bills and the mortgage if my income ceased?
•  Is there scope for family to help in the event that I could not work and what burden would that place on them?
• What lifestyle changes could be made immediately and how long could I sustain them if I was faced with a personal crisis today?

These are just a few of the types of questions to consider and they need to be answered realistically and honestly.  Often these questions are best discussed with a financial planner who is trained to ensure all considerations are covered and to help put the resulting answers into perspective for you. 

Even though it can be quite confronting to talk about the worst things that can happen to you and your loved ones, planning for the worst can provide peace of mind and let you get on with enjoying the best that life has to offer.

*Stephen Schill  is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.

Any advice given is general only and has not taken into account your objectives, financial situation or needs.  Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.

By AMP Financial Planner Stephen Schill

“You have cancer” are words that you never want to hear but when you do, you can be faced with questions like: Why me? What will happen to my family? How do I fight this? How much will it cost? How will my family cope financially if I can’t work or, worse yet, if I don’t survive?

According to the Cancer Council of Australia, cancer is the second leading cause of death with approximately 43,000 people estimated to have died from the disease in Australia in 2010 and about 114,000 new cases diagnosed during the year.

Being told that you have cancer is a big enough blow to your mind, body, emotions and overall spirit without having to worry about your finances. As a person living with cancer, your first priority is to get well again and spend as much time with your loved ones as possible. However, it can be hard to concentrate on these priorities when you have bills to pay, a family to feed and mounting medical costs.

Many people believe that taking out life insurance is for the aged, those who are ill, have children or are thinking about retiring. This is a myth.

An illness like cancer can strike when you least expect it and one of the most responsible actions you can take is to be financially prepared. Similar to private health insurance, taking out life insurance when you are young and healthy ensures lower premiums for the lifetime of your policy.

So what life insurance policies should you be considering?

• Trauma Cover

Trauma Cover provides a lump sum payment if you’re diagnosed with a specified trauma condition. Trauma Cover is designed to help pay for your medical costs and living expenses, providing you with some financial security during the important recovery process.

The types of conditions that Trauma Cover may cover you for include: heart attack, multiple sclerosis, motor neurone disease, major organ transplant, severe burns, cancers, dementia and stroke or paralysis.

• Income Protection

Income Protection, also known as salary continuance, usually pays a monthly benefit of up to 75 per cent of your regular income if you’re too sick or injured to work.

This type of insurance is designed to help you continue to pay the mortgage, children’s school fees, utility bills and buy food, clothes and other day-to-day expenses.

• Total and Permanent Disablement (TPD)

TPD cover provides a lump sum payment if you’re totally and permanently disabled. This cover will usually help you pay for medical expenses, repay major debts and ensure that you are looked after in the future.

• Death Cover

Death cover works by making a lump sum payment to your family if you were to die, or, under some policies, are diagnosed with a terminal illness. It offers you the security that if the unexpected were to happen, your family would have financial protection.

For anyone who has large debts such as a mortgage, it is important to take out death cover, irrespective of your age.

Making sure you have the right cover will help give you peace of mind now and financial support in the unfortunate incident that you experience disability, illness or death.

If you would like professional advice about which life insurance option is most suitable for you and your family, you could consider consulting with an accredited financial planner. Your financial planner will investigate how much cover you currently have and how much you should have by taking into consideration your personal circumstances and needs. 

*Stephen Schill  is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.

Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.