When it comes to personal insurance there are various options and benefits available - and plenty of jargon to match. Spend two minutes reading this easy-to-digest summary of the options, and you'll have all the relevant information you need to make informed decisions.Medical / Hospital Cover
This pays a lump sum in the event of death.Insurance is about having a plan B, and life insurance is a funding mechanism to make sure that the family unit can carry on should the unforeseen happen. There is no right or wrong answer when it comes to the level of cover. However a good basic methodology to apply for life cover is enough to clear all your debt, plus a $100k for each dependent.
Unfortunately, critical illness is something none of us can afford to ignore. The stats show that two out of five people will suffer a critical illness before the age of 65 -and this is certainly the area where we have had the most amount of claims for our clients. Between the various companies the trauma policies available cover you for over 60 different conditions - although 90% of trauma cover claims made are associated with cancer, heart attacks and strokes.
Trauma cover provides a plan B in the form of a lump sum benefit paid on diagnosis. Again there is no right or wrong answer for the amount of cover, but we suggest at least two year's salary based on the highest income. This means that in the event of a serious illness you would have at least two year's income in the bank. Consequently, you can focus on recovery without worrying about where the next dollar is coming from.
In general there are two types of income protection policies available - Agreed Value Contracts and Indemnity Contracts (these include Loss of Earnings policies);
Agreed Value Contracts are based on a tiered ratio of between 55% - 62.5% of your current gross income. Please note the premiums for these types of policies are not tax deductible, but, any benefits received would be net / tax paid. All the financial underwriting is done upfront which provides certainty of outcome at time of claim.
Indemnity Contracts are based on 75% of your gross income. Please note that the premiums for this policy are tax deductible but any benefit received is also taxable. However, all financial underwriting is done at time of claim - which means that you have to prove your income at time of claim which is calculated as the lesser of 75% of your pre-disability income based on the average of your last two years taxable income or the sum assured.The key difference is the fact that the financial underwriting for Agreed Value Contracts is done upfront, providing certainty of outcome at time of claim. So, there would be no impact if you were having a bad financial year and had to make a claim as the amount of cover has been agreed to upfront.
Taking the Agreed Value concept one stage further we can split any Income Protection Cover in to Income and Mortgage Repayment Cover. The underlying policy wordings - definition of disability - are the same but, with Mortgage Repayment Cover there are no offsets with ACC. Which means that if you are off work as a result of an accident you will have your mortgage paid for and should receive 80% of your income by way of ACC also.
With both of these benefits we have two opportunities to manipulate and reduce the premiums;
The Waiting Period: The waiting period works in a similar way to the excess on your car - the longer the waiting period the lower the risk for the insurance company. The options are 4, 8, 13, 26 and 52 weeks.The Benefit Payment Period: The shorter the benefit payment (risk period) the lower the premiums. The options here are two or five years or to age 65.