A major consideration in looking for personal insurance is just what do you insure yourself for? There are a number of variations in the types of personal insurance that you can purchase and its easy to get hung up on the small print of this policy versus that policy. Essentially they do the same thing and the worst thing you can do is overcomplicate the process and end up with nothing. Remember, when it comes to insuring yourself & family, something is always better than nothing.
Although insurance providers have a whole raft of additional add-ons and small variations in how their products work there are essentially four main types of insurance product in the market. Life, Trauma, Total & Permanent Disability (TPD) and Income Protection. In my experience, the reason that the vast majority who don’t have insurance, don’t have it because they don’t understand what it does.
An insurance policy is a contract between you and the provider that on the basis that you continue to pay your premiums, they will pay out your sum insured in the event of you experiencing an illness or death. It’s a long stretch to expect you to pay for a policy where you aren’t sure what you’re going to get. As a result, we’ve tried to run through the main types of personal insurance currently available and how these can be of use to you.
Life Insurance – Pure life insurance is the what most people think of when you talk about personal insurance. In the event of your death your family/estate receive a lump sum to allow them to continue to live in the same lifestyle they were accustomed to when you were around.
Trauma Insurance – Also known as Critical Illness insurance, pays out a lump sum in the event of you suffering from one of a list of specified illnesses. Critical illnesses are generally very serious illnesses that make you question whether you’ll be around in another 5 years and in my experience the payout received is used more to condense all the things you wanted to do in your life into this short period of time. Alternatively, if you want to use your payout for peace of mind to pay off debts, its entirely up to you. Its interesting to note that approx 8 out of 10 claims relate to the three core conditions that are the basis for all trauma policies, heart attack, cancer and stroke.
Income Protection – This pays out a percentage of your income in the event of being unable to work due to long term illness. The maximum you can insure yourself for is usually up to 75% of your income, insurers don’t want you to have exactly the same level of income as when you stopped working as there’s no incentive for you to go back to work. Payments towards income protection polices are generally tax deductible.
Total & Permanent Disability (TPD) Cover – This typically pays out a lump sum in the event that you are permanently unable to do your own job or if you are unable to do 2 out of 5 activities of daily living.
Structuring your insurance
Now that you’ve decided you need insurance, you then need to determine which type of insurance cover you require. Generally, you need a little of everything, but each individual is different. If you’re limited by budget, try prioritise what is more important to you.
Life insurance is often opted for as it’s generally the cheapest cover and the cover that people are most familiar with. If you are seriously ill, then not only has your family unit lost your income but you still have to feed, clothe and perhaps find a carer to look after you. For most, due to the relative cheapness of life insurance, not insuring yourself for your outstanding mortgage and personal debts is just plain stupidity. Having said that if you’re single and have no dependents there is very little reason for you insure yourself in the event of death. After all, you can’t take it with you.
Income protection plans are ideal in terms of providing a long term income, but don’t provide the lump sum that you may need in times of very serious illness where you may want to spend time away with your family.
Trauma and TPD policies provide a lump sum, but can seem costly, this is because men have a 2 in 5 and women a 1 in 4 chance of suffering a critical illness between the ages of 30 and 64 (General Cologne Re, 2001).
As a result, structuring your insurance is very personal. Our suggestion is to use the quick calcs that Zurich have built for Ezicover and get a feel for the cost. Zurich Ezicover even allows you to put multiple covers within one policy with an added benefit of a multi-policy discount.
Top 3 insurance tips
Tell the truth
Failing to disclose all relevant information to your insurer about your current health, personal habits (such as smoking and drinking) and medical history may cause complications at claim time.
Many insurance products are sold direct through a high street bank or alongside a mortgage product. Unless you’ve shopped around or dealt through a broker how do you know you’re not overpaying?
Obviously we’re going to say this, after all, we want your business, but, as simple as it sounds, it’s the one thing most of us are guilty; ‘just not getting round to do it’. Even small premiums can make a significant difference in the event of a claim, so make sure you have some in place.
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