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  3. Types of Insurance

Under the broad banner of Life Insurance, there are different types of cover than can be implemented depending on your circumstances and needs. These main types of life insurance all have the same general purpose – to provide security for you and your loved ones by paying a benefit in the event of sickness, major illness, permanent disability or death.

The following provides a summary of the main four covers:

  1. Life Cover

    Names: Life Cover, Term Life Cover, Death Cover

    What is it: Insurance cover that will provide your nominated beneficiary with a lump sum payment upon your death. Many providers will also pay out on diagnosis of a terminal illness benefit.

    Insurance Owner/funded by: Either Superannuation or personally

  1. Total & Permanent Disability

    Names: T.P.D, Permanent incapacity

    What is it: Insurance cover that will provide a benefit payment if you are deemed too sick or injured to work again. The lump sum benefit can be used to help with rehabilitation, eliminate debts and help cover everyday living expenses. TPD can often be bundled with Life Insurance as a package.

    Different types of T.P.D:

    • Any Occupation – You could only apply for a claim if you are unable to undertake any occupation that would be suitable to your education, training or experience
    • Own Occupation - You could apply for a claim if you are unable to continue work in your chosen occupation. This option is generally more expensive, and can’t be held inside superannuation.

    Insurance Owner/funded by: : Either Superannuation (TPD Any Occupation) or personally (both Any & Own TPD)


  2. Income Protection

    Names: I.P., Salary Continuance

    What is it: : Insurance cover that will provide a benefit, usually monthly, that replaces your income when your ability to work is affected due to illness or injury. Income protection plans can vary, but in general will provide 75% of your salary for a pre-agreed period, after an initial waiting period has been served.

    Income Protection Considerations:

    • Benefit Period – As part of your Income Protection policy, there will be a benefit period which dictates how long a payment will continue for. The benefit periods available can range from 2 years, up until 65 years, with the cost of premiums increasing as the benefit period increases.
    • Waiting Period–As part of your Income Protection policy, there will be a waiting period that must be served before a claim can be made. The shortest waiting period is generally 30 days, and can continue out to 6 months, with the cost of premiums decreasing as the waiting period increases.

    Insurance Owner/funded by: Either Superannuation, personally, or in some cases, a combination of both.


  3. Trauma Insurance

    Name: Trauma, Critical Illness, Recover Care

    What is it: Insurance cover that will provide a lump sum benefit if you are diagnosed with a significant illness that can seriously affect one’s health, such as cancer or stroke. The money can help provide funds for rehabilitation, cover debts, medical costs, whilst one is recovering.

    Insurance Owner/funded by: Can only be paid and held for personally, not inside superannuation.


Insurance Premiums Considerations

There are two options (although some insurers are introducing a third, which is a mixture of the two below) that affect how much premiums will cost, and how much they change in the future.

Stepped Premiums

Your insurance premium will increase each year as you get older but is usually cheaper in the beginning. If you're thinking about this option, it is worth looking at what the premiums will be over the next 5 years, or however long you intend to hold the insurance for, to make sure you can afford the premiums. If you maintain this structure for the long term, it will generally be more expensive than level premiums

Level Premiums

Your insurance premium does not change due to your age but is generally more expensive than a stepped premium in the beginning. Level premiums may increase over time due to inflation adjustments or changes to the insurer's fees. Whilst initially more expensive, if held over the long term, they will become a cheaper option.