If you’re like most Australians, you probably insure what’s important to you—your home, your car, your holiday trips. But do you insure what’s probably your most valuable asset – your income?
What is personal insurance and why is it important?
Personal insurance can provide cover when things go wrong, such as the death of an insured person, or if a serious accident, illness or injury leaves you disabled or unable to work for a period of time.
These kinds of situations can affect your ability to meet your ongoing financial commitments. The insurance proceeds can be used to help pay for things such as debt repayments, everyday expenses and even medical bills if you have to make a claim.
Your insurer provides cover based on the type of insurance you choose in return for a sum of money you pay at regular intervals called a premium.
How much insurance do you need?
You’ll need the right amount of insurance to make sure you and your loved ones are looked after financially should anything ever happen.
You’ll need to consider the different types of insurance you might need, what you’ll be covered for and how much you’ll be paying.
How much money would you or your family need to pay off your loans or debts?
How would immediate expenses be covered—medical or funeral bills—if you passed away?
Do you have savings, an emergency fund, assets, investments or super that could help?
Do you have paid leave entitlements if you were injured or became ill?
Might you be eligible for government benefits or workers’ compensation?
How would you cover the cost of treatment and rehabilitation if it were required?
Would you need to make any modifications to where you live if you were less mobile?
It’s a good idea to work out up front what you can afford, and if you have any existing cover elsewhere that may be adequate.
How is your insurance premium calculated?
In most cases you’ll need to go through an underwriting process. This means your insurer will determine the cost of your insurance cover based on a number of things including your age and gender, and potentially other factors relating to your health and lifestyle. This may mean that you could be asked to provide extra information or even undertake a medical assessment. Using this information, the insurer can more accurately assess your risk and set your premiums to reflect this, so you should never pay more than you need to.
The exception is for certaindefault or group insurance cover—for example insurance inside superfrom your employer’s fund.
Insurance inside super: insurance cover through your super account
Many super plans include insurance as part of their offer. Insurance inside super can include death cover and disability cover. Premiums are paid out of your super balance and any insurance proceeds paid into the fund.
How it works
Your insurance premiums are paid out of the money in your super account. So it’s one less expense that you need to budget for from your take-home pay.
As the insurance is held in your super account, any proceeds are paid to the super fund.
For any default cover, you won’t need to go through an underwriting process unless you decide to apply for extra cover.
TIP: How to find out if you have insurance inside your super
If you’re not sure whether you have insurance through super, what type of insurance you have or how much you might be paying in premiums, you can check your annual super statement or contact your super fund to find out more.
If you do have insurance inside super, it’s also important to note that you may still need additional cover outside of super, depending on your circumstances.
Types of personal insurance
There are four types of insurance covering different situations. These definitions are general so you should refer to the product disclosure statement (PDS) for the full terms and conditions of your policy or speak to us on 1300 181 707.
1. What is life insurance?
Life insurance pays out a lump sum to the policyholder or their beneficiaries upon death or the diagnosis of a terminal illness. While dealing with a situation such as this is never easy, life insurance can help provide financial security for your loved ones, as your beneficiaries will receive a financial payout.
2. What is total and permanent disability (TPD) insurance?
TPD insurance pays out a lump sum if you become disabled and are unable to work again. The money can be used as you wish, such as to help with your medical costs or living expenses. TPD cover is generally only available with a life insurance policy and, if linked to your life cover, the amount of your life insurance cover will be reduced by the amount of any TPD claim that’s paid.
3. What is income protection insurance?
Income protection (sometimes called temporary incapacity or salary continuance insurance) can provide a replacement income of up to 75% of your regular income if you can’t work due to illness or injury. You can use the money to cover daily living expenses, pay your medical bills and rehabilitation costs to help you return to work or find a new job.
4. What is trauma insurance?
Trauma insurance (only available outside super) provides you with a lump-sum payment if you’re diagnosed with a specified medical condition or serious injury, or undergo certain medical procedures. Medical definitions in your policy will determine what you’re covered for, The definitions will generally take into account the severity of a condition relating to things such as a heart attack, major organ transplant, cancer or stroke.
Trauma insurance differs from private health insurance. Trauma insurance will provide a lump sum payment, while health insurance will generally only help pay your hospital and medical bills, and possibly some rehabilitation expenses. A trauma insurance benefit can be used in any way, including helping you meet additional medical costs or repaying your home loan and other debts, in addition to any modifications you may need to make to your home.
Four ways to help you manage your insurance policy
1. Review your cover when things change
Reaching major milestones like having kids, paying off the mortgage, buying or selling an investment property or retiring can impact the amount of insurance cover you need. You may also choose to review any loadings you have1, additional options you have chosen, or any activities or conditions your cover excludes2. It’s important to review your cover to make sure you’re only paying for what you need.
2. Manage automatic insurance increases
Your policy may have a feature that automatically increases your cover each year to keep up with inflation. If you decide you don’t need this additional cover, you can cancel your next automatic increase and your sum insured will remain the same.
3. Tell your insurer about healthy lifestyle changes you’ve made
Making healthy lifestyle changes is a great achievement. For example, if you have quit smoking, you can request an insurance reassessment to see if you can reduce the cost of your cover. If you have exclusions or loadings, these could be removed if your health has improved or you no longer pursue risky hobbies.
4. Keep your beneficiaries up to date
Review any beneficiary nominations and if your circumstances or preferences have changed, let your insurer know as soon as you can. Also, for some policies, your original beneficiary notification may expire after a period of time, which means you have to re-nominate them.
Talk to your financial adviser for more information or if you have an AMP policy, contact us through the details on your policy statement.
What happens if your insurance cover lapses?
If you let your insurance lapse (or expire) you’ll no longer be covered, and you may not be able to get the same level of cover or at the same price again in the future.
If you’re paying your insurance through super and your super balance is not enough to fund your insurance premiums, your insurance may also lapse.
From 1 July 2019 super providers must cancel the insurance in any super account that’s considered inactive (no amounts, such as contributions or rollovers, made into the super account for 16 continuous months or more). If your insurance is cancelled, you will lose the insurance cover in your super account. And you’ll no longer pay an insurance premium from your inactive super account.
If you want to take out cover a second time, you may need to go through an underwriting process, which will take into account your health and financial details at this later point in time. As health can worsen with age, this may result in exclusions or increased costs. Sometimes insurers will allow reinstatement processes with less underwriting within a short period after lapse or cancellation.
How to make an insurance claim
If you need to make a claim on your insurance, get in touch with your insurance provider. Or if you have insurance through your super, contact your super fund to find out what information they need from you to assess your claim.
Please contact us on 1300 181 707 to discuss.
Source: AMP July 2019
1 A loading is an extra amount factored into your insurance premium, which reflects your personal circumstances at the time you underwent underwriting.
2 Exclusions are those activities and conditions you won’t be covered for, because of the risk involved from a pre-existing medical condition.
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling 1300 181 707, before deciding what’s right for you.
All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person.