Life insurance is a term used collectively for a large number of insurance policies offered to Australian buyers. Some of the covers that fall under the life insurance bracket include:
- term life insurance
- total permanent disability insurance
- funeral insurance plan
- income protection insurance
- trauma insurance.
Each of these covers can be divided into sub categories based on the benefits offered, types of contracts and terms of the contract.
Term Life Insurance Plans
- Term Death Covers – These plans protect the policy holder’s immediate family or chosen beneficiaries of the estate when the policy holder passes away. Some of the situations in which a claim can be filed include death by natural causes, death by accident and death by illness. Suicides are not covered by insurers in Australia and buyers who attempt to suicide in order to get claim payouts may be exempted from future claims.
- Whole Life Insurance Plans – These plans protect the policy holder for his entire life that is until he is alive; however these plans are not offered to Australian buyers any more.
- Death Covers – These plans can be purchased by members of super funds and these plans are usually managed by the super fund manager hence all or majority of the eligibility criteria is decided by the super fund itself. Superfund plans offer additional benefits to the policy holder such as additional tax benefits along with a shorter waiting period or longer term of the contract. Death covers purchased under super funds are cheaper but may have limitations.
Income Insurance Plans
Income insurance plans are offered to those buyers who want to protect themselves financially by insuring their income for a maximum of 75%. This means that, the insurer will offer a maximum of 75% of the insured person’s annual pre tax income if a claim is filed and accepted. Buyers who are planning to purchase an income insurance plan will be given two choices.
- Indemnity Income Insurance – These covers protect the policy holder financially if he is unemployed due to temporary illness or injured and needs financial aid from the insurer. Indemnity contracts offer a variable compensation payout every month to the insured person and this payout amount is calculated after the insurer reviews the insured person’s salary records. The amount received by the insured person will largely depend on how much the insured person earned at the time of filing the compensation claim.
- Agreed Value Income Insurance – These covers protect the policy holder financially if he is temporarily unemployed due to illness or injury and needs maximum financial help from the insurer. Agreed value contracts offer a pre-decided payout every month to the insured person and this payout amount is calculated based on the income of the policy holder at the time of purchasing the contract. Self employed professionals who do not earn a steady amount of income every year can benefit due to this feature of agreed value plans.
Trauma insurance or critical illness plans protect the policy holder financially if he is diagnosed with a serious illness such as heart problems, stroke, cancer or certain mental illnesses. Insurers usually offer financially protection against 15 – 20 illnesses; however comprehensive plans offer financial protection against a longer list of illnesses.
Total and Permanent Disability (TPD ) Insurance
TPD plans protect the policy holder financially if he is severely injured, loses one or all limbs, uses function or one or all limbs, loses one or both eyes, uses function of one or both eyes or suffers significantly injury to other parts of the body. TPD plans offer a lump sum payment that is given to the policy holder once a claim is filed and the compensation payment given to the insured person will depend on the insured amount along with the severity of the accident and injury.
These add on plans can ensure that the policy holder’s immediate family or chosen beneficiaries of the estate do not have to worry about funeral expenses when they are grieving the loss of a loved one. The lump sum compensation payout is given soon after the claim is filed and the final payout will depend on the insured amount.
Basic Insurance Plans vs. Comprehensive Plans
- Basic plans usually have set terms that have to be followed by the policy holder in order for him to get the compensation payment. Comprehensive contracts allow the policy holder to choose majority of the features in his policy which gives him maximum control of his insurance plan.
- Opting for an insurance plan that costs lesser than comprehensive plans can benefit the insured person financially but only for a few years since comprehensive plans offer many additional benefits along with a higher onetime compensation payouts or higher monthly compensation payouts.
- Basic Plans offer a compensation benefit and the payout will depend on the level of cover and the type of contract. Comprehensive plans offer a compensation benefit that is usually higher than the compensation benefit offered by basic plans. Comprehensive plans have fewer restrictions, exclusions and may not ask buyers to pay premium loading fees. This however; will depend on the conditions set by the selected insurer. Comprehensive plans for income insurance may also offer a rehabilitation expenses benefit, accommodation benefit, transplant surgery benefit, cosmetic surgery benefit, a death benefit for a limited amount, worldwide cover, a day one claim benefit and a guaranteed renewability benefit.
- Some insurers may offer add on perks with basic plans and these paid perks include a day one claim benefit and indexation benefit. Comprehensive plans may offer these benefits for no cost or for a nominal fee.
- Comprehensive death covers may also offer a free critical illness plan for children; that offers a onetime compensation payment to the family of the insured child. A claim can be filed to keep the child comfortable when he is diagnosed with a critical illness or to get medical help for the child if he is traumatized for any reason. Additionally, the family will be given a lump sum compensation payment if the child passes away due to an illness or injury.