By Tamia Gallego
Five types of insurance cover that I would recommend to have at all times are Income Protection, Life, Total Permanent Disability, Critical Illness (Trauma) and Private Health.
You earn money at work therefore you are the most important income-producing asset to yourself and your dependents. Just as you insure your car you may need to consider insuring your income.
Let’s consider you are 30 years of age and earn $75,000 a year. If your ability to earn an income was taken away due to illness or injury, your potential loss in future earnings could be $2,625,000 (35 years multiplied by $75,000 without inflation).
Some people may recover in the short term, however others may not be able to return to work ever again. Even a few months off work could have a detrimental impact on the finances of your family. Income protection can be used to insure up to 75% of your taxable income in the event you cannot work for a period of time due to injury or illness.
The payout from income protection can be used to pay the bills, mortgage and overall living expenses. It is worthwhile to note income protection premiums are tax deductible for most taxpayers. Whilst this protection is available through super, some benefits are payable for up to two years. You should consider taking a policy outside super with benefits payable to the age of 65.
An article on news.com.au (3/5/12) reported a mother who was carrying her baby was killed after being hit by a school bus. Miraculously her baby survived as she swung it from underneath the bus. This is when protection such as life insurance sure comes in handy. The benefit of life insurance is that it provides a lump sum to your family in the event of death or a terminal illness. It is available to people between the age of 17 and 69. Life insurance is provided to protect your family where the lump sum may be used to meet the costs of a mortgage or the family’s ongoing financial obligations.
Disability and death are something people don’t like to think about. I’ll admit that up to last year I didn’t put too much thought into updating my personal insurances. I knew it was offered as part of my super but I honestly thought it wouldn’t affect me in any way.
However a tragic incident occurred to a former colleague that caused me to rethink my personal insurances. My colleague was waiting at a bus stop going about his evening and heading home, when a car lost control and mounted the kerb and struck him. My colleague was unfortunately at the wrong place at the wrong time. The car pinned him down and crushed his leg, and regrettably doctors couldn’t save his leg, and they had to amputate below his knee. He was off work for six months recovering and going through rehabilitation to learn how to walk again.
This was an immense change in his life, especially having two young children to depend on him, and not being able to help look after while recovering leaving a lot of the burden to rest on his wife’s shoulders. This is something we don’t think could happen to us but it does, everyday. This is why I urge you to consider how your life would be affected if you were to suffer an injury or illness that resulted in you never being able to work again?
Centrelink benefits may be available, but would not be sufficient to pay a mortgage and raise a family. Depending on the disability, funds may be required for modifications to your home and vehicle to accommodate your shifting needs. This again is the case of my former colleague who had to refit his home after loosing his leg. He had to install disable assistance aides such as handles in the bathroom to prevent him from falling, and his kitchen had to be refitted to allow him to live a normal life. Selling any assets that you may have, coupled with any savings in the bank may keep you afloat for a while, but it would leave a huge dent in your financial pocket.
Insurance companies payout TPD in a lump sum, in the event of becoming totally and permanently disabled, or unable to find work similar to your current employment with the same experience or education. Similar to life insurance, the lump sum can be used for home or car modifications that may be required depending on the disability. Any excess funds may be used as you see fit.
Trauma insurance provides you with a lump sum on the diagnosis of a serious medical condition such as cancer, heart attack or stroke. Insurance companies have a raft of other medical conditions and certain companies cover things such as birth related complications. I am personally with MLC for trauma insurance as we are considering starting a family and feel comfortable with the level of coverage offered. If you do need trauma insurance you have to seek a financial adviser who will help arrange protection for you. Insurance companies won’t deal with retail customers directly.
Trauma insurance payout can be used as you see fit, for example to cover medical costs and treatment, or to reduce your debt. Trauma is the most commonly claimed insurance. It will prove to the one of the best investments you make if it protects you from being financially wiped out.
After receiving insurance payout as a result of a serious medical condition, some people reevaluate their lives and make a permanent lifestyle change such as reducing their working hours so they can spend more time with family.
There are a number of benefits for taking out private health insurance:
1. You can avoid the public hospital’s waiting lists and enjoy a private room in a private hospital.
2. You get to choose your own doctor as a private patient and get treated by the same doctor each time you go to hospital.
3. With hospital cover, you will be covered for same day, overnight stays, meals, intensive care, and operating theatre costs.
4. There are extras that private health care provides that Medicare does not, such as dental, physiotherapy, and optical.
5. You get ambulance cover should you get into an accident and need ambulance transportation. Medicare does not cover you in this instance.
6. You may be able to save on your tax bill and avoid having to pay the Medicare Levy Surcharge. This is an extra 1% tax for singles on an income over $80,000 and families with a combined income over $160,000.
7. If you’re a member of a health fund, you’ll be eligible for a reduction of your premium costs regardless of the type of cover you have.
If you are unsure what insurance is right for you, we are more than happy to assist by providing you with the details of some of the advisors we deal with.
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