Debunking Life Insurance and Income Protection Myths

Term life insurance and income protection insurance plans are two types of life covers offered to buyers in Australia. These types of plans are both beneficial and affordable which means that buyers who want to purchase new plans can enjoy maximum protection for minimum costs.

There are a lot of myths around term life insurance and income protection insurance plans due to which new buyers are often nervous about purchasing a new plan or upgrading their existing plan. This article will aim to debunk majority of these myths by providing facts.

 5 Life Insurance and Income Cover Myths Debunked

  • It is commonly believed that life cover premiums are deductible. This is not true and unless you are self employed and the coverage is offered on the business operations, life insurance premiums are not deductible. If you are interested in enjoying tax benefits from term life covers then you should consult an insurance advisor and a tax advisor before purchasing a plan. Income covers offer maximum tax benefits since the premiums for income protection insurance plans are tax deductible.
  • One of the most common myths about life covers are that, they are too expensive and cannot be afforded by the common man. The truth is that, life covers are affordable as long as you opt for a moderate cover with adequate benefits. If you decide to opt for a cover with maximum benefits or if you decide to opt for a cover with the highest cover limit then you may have to pay $10 or more every month towards premiums. The average cost of a life cover in Australia is between $5 – $10 a month. Similarly, income covers are affordable provided you choose a reasonable compensation amount such as 60% of your gross annual income and 3-5 additional benefits. Opting for the standard waiting period, a longer benefit period and a longer term for the policy are a few ways to maximize the benefits you will be getting. Opting for add on perks such as the day one accident benefit will increase the cost of your policy but will ensure that you are eligible for a compensation payout if you meet with an accident before the waiting period of the policy is over. People who are prone to accidents should consider opting for such add on benefits.
  • Most people are made to led to believe that they will never file a claim in their lifetime hence purchasing a life cover is unnecessary. This is not true, since statistics show that an increasing number of beneficiaries are filing life protection plan claims and getting the promised compensation amount. If the policy holder passes away while the policy is active due to reasons such as natural death or an illness, accident then the beneficiaries can get a compensation payment provided all the premiums have been paid till date. Life covers are meant to protect the policy holder’s beneficiaries from uncertainties and to provide peace of mind to the policy holder while he is alive.
  • Another common myth is that, purchasing the most expensive policy is often the best solution for life cover needs. This is not true, since each person has different needs. Before purchasing a policy, you should consider your personal needs, financial needs and the needs of your beneficiaries. Inflation and personal lifestyle should be considered before making a choice. Usually a cover of $500,000 is adequate for most people in Australia, however higher covers and lower covers are available to people who want tailor made policies.
  • One of the most common life cover myths that often cause a lot of families to suffer is that, only primary bread winners of the family need life covers and government benefits are enough for families to survive. Life protection plans are meant for each and every member of the family that either financially contributes to the household or offers any other kind of help to the household. Homemakers and bread winners should be covered by life covers. These days, parents are taking out life covers for children as well, since they understand the important of these plans. These plans can help pay outstanding medical bills or other debts that the policy holder has taken while he was alive. Although the Australian government may offer some amount of compensation if the person who has passed away is eligible for compensation, these benefits are hardly ever adequate.


2 Facts about Life Covers and Income Protection Plans

  • Workers compensation insurance is a mandatory type of insurance plan offered by all employers in Australia. All employees are covered by this plan; however there are many limitations to this plan, which prevents the employee from getting the benefits of this type of insurance plan. For instance, the compensation payout will only be provided for accidents that have occurred at work, during work hours. The compensation payment provided is limited and can be inadequate for most people who have injured themselves significantly. Income covers do not have these limitations, the policy holder can enjoy the benefits if he is injured at work or elsewhere and he can also enjoy the offered benefits if he is ill due to which he cannot work for a few weeks or a few months. The compensation payment for income covers is a maximum of 75% of the policy holder’s gross annual income which means that if you are injured or ill then you can get a large part of your income towards a monthly compensation payment to help you run your household.
  • Both income covers and life protection plans are offered with add on plans, purchasing add on plans such as total disability insurance plans will ensure maximum protection for a lower cost since insurers in Australia tend to offer bundled rates for add on plans. there may be certain tax implications of purchasing add on plans with income covers and life protection plans, hence make sure that you consult a tax expert before purchasing any one of the add  on plans. Both basic plans and add on plans can be purchased online at insurance comparison websites and insurance agents’ websites.
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Income Protection  Life Insurance