Personal insurance

Most policies will allow you to add optional components to cover total and permanent disability and illnesses that, while not terminal, may significantly impact your ability to earn an income. 

Life insurance is paid to the policy owner or the insured and is paid to his/her estate or nominated beneficiary in the event of death. With life insurance, you can usually add an optional total and permanent disability cover in case you’re unable to work due to permanent disability. There is generally an optional trauma cover, which pays a benefit if you are affected by conditions covered by the specific insurance policy such as cancer, stroke, loss of limbs, blindness or severe burns.

Issues to consider

An insurance policy on your life can be owned by you, your spouse, company, trust or a superannuation fund and the lump sum benefit will be payable to the policy owner or nominated beneficiary.

Consider how much you would want to leave your dependants to ensure they can maintain a comfortable lifestyle. Consider an amount that will pay off all debts, including mortgage, funeral costs, education expenses and living expenses for your dependants. If you have life insurance as part of your super, make sure it is enough. Your financial planner can calculate an appropriate level of cover to suit your needs.

As this type of insurance aims to protect your income, the premium are tax deductible.

Income protection is important if you have:

• Debts, such as a mortgage, credit cards or personal loans, which you couldn’t service if you were unable to work due to sickness or injury.
• Little or no savings.
• The need for a regular income to pay ongoing family expenses.
• A business with ongoing costs and expenses.
• A family that needs to be financially protected should you be unable to work.

Issues to consider

• The policy’s definition of "unable to work" – it is important that the definition be relevant to your job and your personal situation.
• The length of time you choose for your insurance to provide a replacement salary – this period can be as little as two years or until you reach 65 years of age.
• How long you have to wait before a benefit is paid – income protection policies have waiting periods that determine how long you must be off work before you start to receive a payment. Typically, the longer the waiting period, the cheaper the premium.

It provides a benefit - usually a lump sum - if you suffer a permanent disability that prevents you from working.

Total and permanent disability insurance payments are generally not made until the disability has been evident for at least six months and the insurer deems that you are unlikely to work again.

This type of insurance might suit you if you do not have a significant amount of extra money that could be used if a permanent disability prevents you from working.

Issues to consider

A total and permanent disability policy on your life can be owned by you, your spouse, company, trust or a superannuation fund and the lump sum benefit will be payable to the policy owner or nominated beneficiary.

How much money would you need to pay off your debts and to ensure you were financially independent if you could no longer work? When determining what lump sum payment is required, you should consider the amount required to pay off your mortgage, an estimated amount for ongoing medical expenses and living expenses for you and your dependants. Your financial planner can calculate an appropriate level of cover to suit your needs.

This benefit is generally a lump sum payment, which can be used at your discretion. Cover is strictly limited to specific injuries and ailments. Ailments commonly covered by trauma insurance policies include heart attack, stroke, cancer and coronary artery disease.

Trauma insurance is an important consideration for anyone who doesn’t have a significant amount of extra money at call if a traumatic health condition occurred. It might suit you if you are supporting a family or if you own a business.

Issues to consider

Trauma insurance can be owned by you, a relative, company or trust. You should consider having a lump sum benefit which covers all your debts including your mortgage, estimated medical expenses and the amount of money required to fund your lifestyle whilst you feel unable to work. Your financial planner can calculate an appropriate level of cover.

These policies are generally suitable for casual employees, home-makers, retirees, those not eligible for income protection or those who just want a basic level of cover.

Living expense insurance provides a monthly benefit to help you pay for the day-to-day living costs, or help meet the costs of either in-home carers or a long-term care facility. The policy can be owned by you, your partner or a third party on your behalf.

An important aspect of estate planning is to protect your assets and safeguard your interests by appointing someone to make financial decisions on your behalf.

A power of attorney is a legal document in which you nominate who will make decisions on your behalf. A power of attorney is only valid while you are mentally capable of making decisions for yourself. However, an enduring power of attorney will continue to operate even if you subsequently lose mental capacity to manage your own financial affairs.

When does a power of attorney start?

Laws governing powers of attorney vary in each state, consequently the terms of each document will differ depending upon which state you reside. However, most enduring powers of attorney will allow you to specify when you wish the power to commence or the circumstances in which your appointed attorney can begin to exercise their powers.