While many Australians have insurance, the fact is that they are underinsured. Many Australians families would not be able to meet financial obligations if the primary income earner loses a job, falls ill, or suffers an accident. Personal insurance provides you and your loved ones with peace of mind if an unexpected event occurs. There are many different options for personal insurance, so here are some tips on how to choose the right personal insurance.
What type of insurance do I need?
There are four types of personal insurance:
- Income protection – income protection insurance will provide you with an income to help with your living expenses if you are unable to work for a period of time.
- Total and permanent disablement (TPD) – if you are unable to work again, TPD insurance cover will provide you with a lump sum payment to help support you.
- Trauma cover – trauma insurance will pay you a lump sum should you contract or suffer from a critical condition such as cancer, heart attacks or strokes.
- Life insurance – life insurance will provide a lump sum to your beneficiaries if you pass away.
How much should my cover be?
The amount of insurance you need will vary depending on your circumstances. You need to work out how much money your family would need to pay debts, bills and living expenses. A study by Rice Warner suggests that your life insurance should be around eight times your income and TPD should be around four times your income. The study recommends income protection be about 85% of your income.
Where should I purchase personal insurance?
You can purchase personal insurance through insurance companies. Many superannuation funds also offer insurance for their members, and usually offer income protection, TPD and life insurance policies. There are benefits to getting covered through your superannuation fund, as it is often cheaper, easy to manage, and you can typically choose the amount you want to be covered for. Be aware though, as superannuation funds typically only cover you until you are 65, your cover may cease if your account is inactive and if you have multiple super accounts, like many Australians, you might find yourself paying premiums on numerous policies.
When purchasing personal insurance, you need to make sure you understand the events/illnesses covered by your insurance, the level of cover, ongoing costs, your medical history, and any exclusions from the policy. Our certified financial planners can walk you through the process and help you choose the best personal insurance for your needs.