Basics of Life Insurance

Death Cover (Life Insurance) Total & Permanent Disablement (TPD)

Is designed to pay a lump sum in the event of an insured‘s death. This lump sum can then be used to pay for things such as extinguishing debts, children’s education, putting in place an income stream, funeral expenses or any other purpose.

For every home lost through fire, there are 4 homes lost through death AND 48 homes lost through disablement.

Death cover can also often pay on the diagnosis of a terminal illness, when the insured is given less than 12 months to live.

Once again common ways of holding death cover are:

In your personal name – you pay the premium.

Within your superannuation fund, in which case the superannuation fund would pay the premiums. Upon the insured’s death the benefit is paid to the insured’s superannuation fund.

Of working age Australians, 25,870 will die and 4–5 times more will suffer a dreaded disease. Every year 36,750 will die of cancer and 261,402 will be diagnosed with cancer.

This cover is designed to pay you a lump sum should you become totally and permanently disabled. This payment can be used to pay for such things as medical expenses, home modifications (i.e. for wheel chair access), payout debts, put in place an income stream or any other purpose.

There are two definitions of Total and Permanent Disablement and careful consideration needs to be made on which option is selected:

Own occupation – This definition of Total and Permanent Disablement means you are disabled if you are unable to do your own job. For example a surgeon would meet this definition if he were to lose his hand, he would still be able to do other jobs but would not be able to do his own. We would have therefore ensured he had an own occupation definition so that he would receive a payout in this event, which he would not have with the following definition.

Any occupation – This definition of Total and Permanent Disablement means you are disabled if you are unable to work in any occupation. For example certain office workers may be better off with an any occupation definition as the loss of a hand may not stop them doing their own job or any other job. The only things that may stop them doing their own or any job is a brain or spinal injury, for them it may not be worth the expense of putting in place an own occupation policy.

Two common ways to hold TPD insurance are:

In your personal name – you pay the premium

Within your superannuation fund – the superannuation fund pays the premiums and receives any benefit. An important consideration in choosing this option is that to be able to draw money from a superannuation fund you must meet a condition of release, one of which is meeting the any occupation definition. It is possible that if you had an own occupation definition policy within your superannuation fund that the TPD benefit may pay to the superannuation fund but as you may have only met the own occupation definition you may not be able to access it at that time. This is something you need to weigh up when deciding how you would like the premiums to be paid.

The types of Premium structures

Stepped Premium – As you age, the risk of something happening to you increases, stepped premiums increase each year to reflect this.

Level Premium – Start out more expensive in most cases, but have already had your future risks factored in to them. In the long run they are often a less expensive option. We often recommend a level premium, due to the fact that the later years of your life are the times that you are more likely to need insurance. At this stage of your life, you may also be questioning the cost of a stepped premium, and wondering whether it is worth holding the insurance.

The most important thing is getting the insurance policy in place. You may choose to change aspects of your policy at a later stage.