Guide to Life Insurance in Australia

By Simon Cooper
March 28, 2022

Life insurance is often confusing to a lot of people. They know what it is, but they are not certain why they may need a policy. Unfortunately, this is also the case for many Australians, there is a widespread tendency to underestimate levels of cover that people may need. There are various insurances that are designed to protect an individual in different life stages and situations but due to the low levels of understanding about these types, the path to purchasing life insurance is unclear which can lead people to delay getting a policy or worse, not getting one at all.

What many people fail to realize is that life insurance protects one’s family, leaving them a non-taxable amount at the time of death. Apart from that, it can also be used to cover mortgage and personal loans and can even replace the family income when resources are less so that the quality of life can be maintained.

There are different life insurances that are designed to protect you from different events that can occur in various stages and situations in your life including:

Life Cover

Life cover is also called ‘term life insurance’ or ‘death cover’. It pays a lump sum amount of money when you die that goes to the people you nominate as beneficiaries. It is important to note that if you haven’t named a beneficiary, the super trustee or your estate decides where the money goes.

Deciding to get a life cover provides you with cash assistance in dealing with the adverse financial consequences of the insured’s death. It also allows you to enjoy favorable tax treatment with death benefits that are generally income-tax-free to the beneficiary.

Should you decide to get a life cover, first thing to consider is how much money you or your family would:

  • Need – to pay the mortgage, credit cards and any other debts, child care, school fees and ongoing living expenses
  • Receive – from super, savings, the sale of any investments, your paid leave balance, and support from your extended family

Total and Permanent Disability (TPD)

Total permanent disability (TPD) is a condition in which an individual is no longer able to work due to injuries. Generally, insurance companies classify disability according to the amount of work that an individual is able to perform:

  • Temporary disabilities – An individual is prevented from working full-time (called temporary partial disability) or at all for a period of time (called temporary total disability).
  • Permanent disabilities – An individual with permanent partial disability is prevented from being able to work full-time for the rest of their life while an individual under total permanent disability means that they will never work again.

A person will only qualify for permanent total disability benefits as soon as the associated medical condition is fixed and stable. As long as there are additional curative treatment options available, or a possibility that the condition may improve over time according to the physician, the insurance company may not consider the person permanently and totally disabled. Being in this situation doesn’t necessarily mean someone won’t eventually receive TPD benefits, but it does mean that a person will have to wait until their medical treatment is complete.

Trauma Insurance

Trauma insurance, also called ‘critical illness’ or ‘recovery insurance’ pays a lump sum amount if you suffer a critical illness or serious injury. This includes illnesses like cancer, a heart condition, major head injury or stroke. Unfortunately, trauma insurance does not cover mental health conditions.

Different insurance companies cover different trauma insurance policies and medical definitions can be different between insurers as well. Trauma insurance can be used to help pay for:

  • Overhead medical costs
  • Living expenses while unable to work
  • The cost of therapy, nursing care and special transport
  • Changes to housing if needed
  • Paying back your debts like mortgage

Income Protection Insurance

Income protection insurance pays you a regular income in any case that you can’t work because of sickness or disability and continues until you return to paid work or you retire. Income protection insurance pays up to 85% of your pre-tax income for a specified time if you’re unable to work due to partial or total disability. It is important to note that the amount of income you are allowed to claim will not replace the exact amount of money you were earning before you had to stop working.

Income protection insurance is definitely for you to avail if:

  • You are self-employed or a small business owner due to the fact that you may not have sick or annual leave
  • You have family members or dependents that rely on the income you earn
  • You have debt, such as a mortgage
  • You may want to factor in making payments to your super
  • You have total or permanent disability or trauma insurance that can help replace lost income
  • You have private health insurance that could help pay for any medical expenses

Moving Forward With The Right Partner

Purchasing life insurance in Australia may not seem like a high priority at the moment, but life and even death happen very unexpectedly. Once you put off getting life insurance, you are also putting your family members at risk, giving them no guarantee of any financial assistance for income and debt payment after you are gone. Although there are a lot of companies offering different insurance products, it is completely understandable and smart that you would want to take your time into choosing what insurance to get and what company to be associated with but keep in mind that you do not have to deal with insurance management alone.

At Forward360, it is our goal to help people enjoy a better, wealthier life, sooner. This includes being well-prepared for any unforeseen events that would need financial response, making sure that you have sufficient funds to spare without having to worry about your finances because worrying does not have a place in the better, wealthier life we envision for you. Contact our friendly support team today.

Simon Cooper

Co-Founder, Managing Director, Financial Adviser

Simon is a financial advisor who takes his work seriously. He ensures that all of his clients receive the best possible advice, so that they can reach and exceed their financial goals, both personally and professionally. Simon has been in the business for many years, and has a wealth of experience to share with his clients. He is known for being friendly and approachable, and always puts the needs of his clients first. Simon Cooper is an Authorised Representative of Reedy Capital Pty Ltd (AFSL No. 495539), Authorised Representative Number 1248807 and a financial adviser at Forward360.

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