Types Of Insurance
Insurance is a very broad topic and not very well understood. There are two main areas of insurance that everyone should be aware of: General Insurance (Car, Home, Contents, Workers Comp, etc) and Personal Insurance. For the purposes of this webpage, the information that will be briefly explained is the Personal Insurance which is also commonly called Risk Insurance.There are four main types of Risk Insurance which are described below for your information.
Life Insurance Cover
Also none as term insurance or death insurance, life insurance is a lump sum benefit that is agreed upon at the time of applying for the insurance and is paid to the policy owner after the death of the life insured. Put simply, if there is a death there is a payout. This insurance also pays out when there is a terminal illness diagnosed.
The main purpose of life insurance is to maintain the same financial position for the beneficaries had the event never occured. For example, if a father was the only income generator of his household , he and his wife had a mortgage on their house and they had two kids, it would be important to have enough life insurance cover on the father to replace the income that was lost as a result of his death. Often financial advisers will give advice to have the life insurance pay out the mortgage and leave enough of a lump some to provide a reasonable income stream from the interest of the lump sum without eating into the capital of the lump sum.
Trauma Insurance Cover
Also known as crisis insurance or recovery insurance, is also a lump sum payment however the lump sum benefit is paid out at a specific event (ie: a listed trauma). Traumas are the major life threatening events that often occur and potentially reduce an individuals life span. The most common traumas are heart attack, stroke & cancer but each insurance company has its own list of traumas with some having only 8 traumas and others having above 60 listed traumas. Most companies would have 40+ listed traumas.
TPD Insurance Cover
Total and Permanent Disabilty (TPD) insurance is also a lump sum benefit but in this case is paid when the life insured is totally and permanently disabled. There are different types of TPD cover such as 'any occupation' and 'own occupation' cover. Depending on an individuals circumstances will be what determines which type of cover is relevant to that individual and a financial planner can help guide that individual to the right policy.
Income Protection Insurance Cover
Also known as salary continuance, income protection (IP) is a monthly payment to the life insured that is paid where that individual can not perform their occupation do to sickness or accident. Income protection covers a maximum 75% of an individuals annual salary but paid in monthly instalments. Income protection premiums are also tax deuctable.
There are an enormous amount of variables that effect the preiums for income protection and ultimately those variables will be explained by the financial planner. As a guide the main distinguishing features that need to be understood before making a choice as to what product is best for an individual are the benefit period, the waiting period, and whether the policy is an agreed value policy or an indemnity policy.