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Family Protection

What does family protection involve:

Family protection involves putting in place the most appropriate arrangements to protect you and your family from the risk of injury, illness, incapacity and death.

Most Australians will insure their car but neglect to insure their most valuable asset themselves. In fact many people do not even have sufficient cover to ensure their home loan is paid out in the event of their death, let alone provide a lump sum to their families to provide for their future.

Ask yourself the following questions:

What would happen if you became ill or injured and your income stopped today? Would you and your family have adequate income to meet the repayments on your debts?

If you have a family, what monthly income would you require to meet the bills? Would you and your family still want to maintain your current lifestyle? Would this be possible? How long could you survive on your existing assets?

If you are struggling to answer some of the above then you may need to address the need to protect you and your family. Protecting all of the above can be achieved through insurance, but it is important to find the right type of cover for you as there are many seemingly similar policies that vary significantly in benefits and features.

What types of insurance are best for you?

There are 4 main types of life insurance that you should consider:

Term Life Insurance pays a lump sum in the event of death. When calculating how much that lump sum should be, you should take into account your level of debt, your family situation, and how much surviving family members would need to be able to live comfortably.

Total and Permanent Disablement Insurance works much the same way as Term Life Insurance, except the policy pays out if you are ill or injured and can never work again. Similar calculations to those with Term Life insurance should be applied to ascertain the level of cover required.

Income Protection Insurance replaces up to 85% of your income for a specified period if you are unable to work temporarily due to illness or injury. If you have debt and are reliant upon your income to meet the loan repayments, this is a very important form of insurance to consider. These premiums may also be tax deductible.

Critical Illness Insurance (sometimes referred to as Trauma Insurance) pays a lump sum if you suffer a defined illness or injury. The most common forms of defined illness are Heart Attack, Cancer and Stroke, although most policies actually list around 20 other conditions that are covered. This allows you to deal with a life threatening condition without the stress of financial concerns which might delay recovery.

As detailed above Life and Total & Permanent Disablement insurance can protect your family if you die or become permanently disabled. Trauma cover is for a specific life threatening event such as a heart attack or stroke and income protection cover protects your family if you are injured or disabled and cannot work.

Some insurers also offer child cover which pays a lump sum if your child suffers a specified trauma condition (e.g. severe burns) or dies.

Deciding how much insurance you need is one of the most important steps in protecting your family and a financial planner can guide you in the right direction in regards to an appropriate level of cover for your situation.

Obtaining life insurance through Super

While it used to be common to obtain life insurance as a stand alone policy, it is now increasingly common to obtain insurance through a super fund.

Insurance through super is not always appropriate for everyone but when it is it has the following advantages:

• Automatic acceptance - one of the easiest ways to get lump sum life insurance is through super. Often members are automatically accepted for cover without having to go and have a medical examination.
• Benefiting from group rates - super funds purchase insurance on behalf of many members, so they are able to offer competitive rates that can often be lower than personally owned policies, particularly after taking into account any tax deductions the super fund can claim.
• Convenience - insurance premiums are usually deducted from the member’s super balance.

However, there are some restrictions in taking insurance cover through super such as where your super fund will not offer cover for the diagnosis of traumatic events (e.g. heart attack, stroke and cancer). Some restrictions may also apply when trying to access the benefit.

To overcome some of the shortcomings, you could also consider supplementing any insurance cover through super with cover outside of superannuation.

As mentioned earlier, working out the right level of cover can be challenging so we again recommend you speak to a financial planner who can help you decide on an appropriate level of insurance cover for your particular situation.

To help you clarify and answer these and many more questions, you should obtain advice from your local ClearView Financial Planner.