Ok, so now we get to the technical bit …. Insurance Terms – Definitions
So you have made the decision to invest in insurance cover, you want to know what it really means – here’s some simple definitions to help you understand the products available at Lifesure:
Insurance cover acts as a contingency scheme , it should form part of your financial plan for the future and is created to protect you and your loved ones or your business partners if you have a setback in life.
We point out that the insurance terms and definitions identified below are given as a general description of only some of the important aspects associated with an insurance policy. It is not a definitive list. Please also note that each Insurance Company may have a different contract and different definitions for clauses contained within their policies. You should always check with your Risk Consultant if unsure of any details relating to your cover.
When planning for your retirement and building financial security, you should consider Life Insurance to ensure that you and your family are adequately protected if something were to happen to you. The only way that you can be certain of having lump sum paid to your loved ones in the event of your death or diagnosis of a terminal illness is by obtaining suitable cover.
The purpose of Term Life Insurance or Death Cover is to provide a lump sum to your family, should you die or be diagnosed with a terminal illness during the term of an active policy. For example, it may allow you to repay debts, like mortgages, personal loans, credit cards or provide a cash deposit to your estate to protect your assets from being sold.
An ongoing income may also be required in the event that the major income earner is no longer around.
Due to medical advances and innovations, a large number of people are now surviving major traumas such as heart attack, cancer, coronary artery surgery etc. However, the recovery period and the cost of care related with such illnesses may cause financial distress for the person recovering from the illness.
Trauma insurance provides a lump sum to the insured person upon diagnosis, or occurrence, of one of a list of specific injuries and illness (see table below) These payments can help you and your dependants to be financially secure in the event of a major trauma.
Whilst there are no restrictions on how the payment may be used, you may wish to pay for medical expenses not covered by Medicare or your Health Fund, to clear any liabilities you may have, take care of bills and expenses, or make lifestyle changes, like reducing working hours.
Each insurer differs, but most policies can cover you for a variety of trauma events such as:
|• Angioplasty||• Cancer (Female Organs)||• Cancer (General)|
|• Cancer (Male Organs)||• Coronary By-Pass Surgery||• Heart Attack|
|• Stroke||• Accidentally Acquired HIV||• Aorta Surgery|
|• Aplastic Anaemia||• Benign brain tumour||• Blindness|
|• Cardiomyopathy||• Kidney Failure||• Chronic Liver Disease|
|• Chronic Lung Disease||• Coma||• Dementia & Alzheimer’s Disease|
|• Viral Encephalitis||• Heart Valve Surgery||• Loss of Hearing|
|• Loss of Independent Existence||• Loss of Limbs||• Loss of Speech|
|• Major Head Trauma||• Major Organ Transplant||• Motor Neurone Disease|
|• Multiple Sclerosis||• Muscular Dystrophy||• Parkinson’s Disease|
|• Primary Pulmonary Hypertension||• Rheumatoid Arthritis||• Severe Burns|
You should consider having total and permanent disability cover, to maintain your family’s lifestyle in the event of disablement. TDP cover pays a lump sum if you become totally and permanently disabled, therefore, assessed to be unable to work ever again.
Each insurer has their own definition and application of total and permanent disablement. Although there are differences between insurers, three generic variations are applicable. The general rule is: the more generous the benefit, the more costly the cover.
The variations relate to an individual’s disability and their inability to perform due to this disability:
- usual or own occupation
- an occupation for which they are qualified by reason of education, training and experience.
The cover could provide a lump sum to allow for a family member to give up work to care for you, or perhaps pay for renovations required at home to support your disability.
Your earned income and more importantly your ability to earn it, is commonly regarded to be your most valuable asset, far more so than property or vehicles, therefore, it is regarded a sensible decision to protect this asset.
It is created to provide a monthly income generally up to 75% of your pre-tax income (including salary sacrificed super contributions), if you are unable to work due to illness or accident. This permits you to ensure an income for you and your family and keep your savings, investment income and other personal assets in place. However, you may also need to consider covering fixed business expenses if you run your own business, which could help protect your future too.
It is very important that any income protection policy accurately recognises and covers your employment terms and conditions and circumstances.
Benefit periods for this type of insurance may be different and as a result alter the premium of policies. Usual benefit periods range from 1 year, 2 years, 5 years, to age 55, to age 60, to age 65, to age 70.
The waiting period before benefits are paid may also influence the premium for income protection insurance. A short waiting period is usually set up to fit those who might be in financial difficulties very quickly if their earned income stops. Your employment sick leave and annual leave entitlements should be considered when deciding the most suitable waiting period.
The monthly income protection could continue to pay your mortgage, utility bills and enable you to keep your other investment strategies in place.
- Key Person Insurance
Key Person Insurance is designed to cover the “key person” of the business, which is usually the owner or an employee who is deemed critical to the survival of business, in other words the main people who make it all happen.
As part of the management team, you may be advised to purchase an insurance policy to cover the key person(s) and if in the event of their death in service, or disability the company receives the insurance benefit. This ensures that the death or disablement of a key person would not cause the demise of the company too due to loss of profit, skills, or goodwill or result in an increase in costs for replacement. The benefit permits strategic plans to continue and assist the company to survive the shock of the corporate loss, without the threat of imminent bankruptcy. The payment can be used to finance the recruitment and training of a successor, pay off debts, pay severance or to close the business in an appropriate manner.
- Partnership Protection
If you are part of a partnership you should consider purchasing insurance designed to protect both partners of your business should one of you die or become permanently disabled. This insurance is designed to protect the surviving partner and allows continued operation of the business. The benefit may also be used by the surviving named beneficiary to purchase the deceased interest in the business, if desired.
- Group Insurance
Group Insurance is designed to cover life insurance for a number of people within an organisation – eg employees or professionals in a business, usually more than 20 people. The insurance may offer lower cost premium rates on basic life cover, and the benefits of the cover is characteristic to group generic needs, not individual requirements.