Are you prepared for the unthinkable?

If you’re a homeowner or are looking to purchase property, it is important to consider not only how you would meet your basic financial commitments, but how you would maintain your quality of life should you or your loved ones become gravely ill or suffer a serious injury.

Protection for such life events can come in many forms, from many providers and with relative affordability. But choosing the right type of protection and understanding what you ‘recovered for can be complex and confusing.

All insurance provides us with a financial safety net. The type(s)of insurance required for our needs requires some careful consideration to ensure coverage in a variety of scenarios.

Total and permanent disability insurance – what does it mean?

A serious injury or illness can make it difficult or impossible for you to continue to work. If this happens, you will need to find a way to support yourself and your family for life. Total and permanent disability cover (TPD) is almost always purchased together with life cover and can provide a financial safety net for such an unforeseen event.

TPD insurance provides cover if you are totally and permanently disabled. Your insurer will define TPD as either when:

• you can’t work again in any occupation, or

• You can’t work in your usual occupation

TPD insurance helps cover the costs of rehabilitation, debt repayments and the future cost of living.

Each insurer will have different definitions of what is and isn’t considered to be totally and permanently disabled. Being off work for a year is NOT ‘permanently disabled’. You need to ask lots of questions and read the fi ne print so you know exactly how your policy defines your cover.

Do I need TPD?
When deciding if you need TPD cover you need to consider:

• Your level of private health insurance

• Other types of life insurance you currently have, especially through your super fund

• How much income you and your family will need to live if you can’t work for a while or forever!

Why do I need life insurance and/or TPD insurance?
Any choice of cover depends entirely on an individual’s circumstances. Term life insurance is probably the most economical form of protection for your family in the event of your death. TPD insurance covers serious and permanent disablement but DOES NOT cover temporary disabilities or many traumas – these are best covered by income protection and trauma policies.

Cases of total and permanent disablement are relatively small in comparison to other conditions. If you have limited dollars to spend on insurance you will need to weigh up whether to spend it on this form of cover.

Insurance through super
Consider buying TPD cover through your super fund because it may be cheaper and you may be automatically accepted. Many super funds off err disability cover. To see what level of cover you have through your super fund:

• Check your member statement

• Contact your super fund for information

• Read your product disclosure statement (PDS)

What cover do I need?

As we accumulate liabilities and have dependents our need for insurance increases. But as we approach retirement we are more likely to have accumulated assets, no liabilities and our children have probably left home. The need for life or permanent disability insurance is then reduced. Insurance needs will vary over time and should be reviewed at least annually.

You need to consider…

Usually, only ONE TPD benefit is ever payable to an individual and payment of a claim for TPD may void your death cover. After a payout you may become uninsurable and no longer able to obtain life, TPD, trauma or income protection insurance covers from any insurer. It is important to ensure you have sufficient cover to enable you to live out your remaining life on the proceeds of the claim.

Beware of so called ‘cheap’ offers of insurance. Small premiums usually mean small amounts of cover. In the event of your death or an accident the cover may be grossly inadequate to meet your family’s needs.

Fortunately, there are providers who have built products specifically for people in your situation.

*Disclaimer: This article is generic in nature. All investment decisions should be considered wisely and based on your personal and financial circumstances. Seek proper advice before committing to any course of investment action. This is not deemed as advice.

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