Life insurance: Core & supplementary provisions

Thinking about your own mortality can be daunting and confronting as it’s often far removed from the expectations of how you see your life panning out, i.e. living to a ripe old age.

However, take a moment to consider, if you were to pass away unexpectedly, would you be leaving behind financially dependent loved ones? If the answer is yes, do you have an appropriate protection plan in place to help safeguard their present and future financial wellbeing?

 

Life insurance can help to lessen the financial impact on your loved ones upon your passing—or diagnosis of a terminal illness that is likely to lead to your passing within a specified period (e.g. 12 or 24 months).

When a life insurance policy is being established, there are many important factors taken into account to ensure it’s appropriate to your financial situation, goals and objectives—inclusive of your ability (from a cash flow perspective) to meet the insurance premiums now and into the future.

These factors can include:

  • Sum insured amount.
  • Premium type (stepped, hybrid or level).
  • Ownership structure (super or non-super).
  • Pre-existing conditions, exclusions and loadings.
  • Policy linkage (linked TPD, linked trauma, or linked TPD/trauma).

Other important factors are the specific provisions that you would like your life insurance policy to encompass. Generally, these provisions can be categorised into core and supplementary provisions:

  • Core provisions—features and definitions that are primary considerations when determining the need for life insurance. For example, a life insurance policy that provides a lump sum benefit payment in the event you were to pass away or be diagnosed with a terminal illness that is likely to lead to your passing within a specified period (e.g. 12 or 24 months, depending on an insurer’s life insurance policy offering).
  • Supplementary provisions—other features and definitions that are secondary considerations when determining the need for life insurance. For example, a life insurance policy that has a Funeral Advancement Benefit to help with the cost of your funeral or other immediate expenses.

The decision to choose a life insurance policy that either focuses on core provisions or a mix of both core and supplementary provisions can come down to cost versus benefit, and your preference of insurance cover.

Importantly, while a life insurance policy that encompasses both core and supplementary provisions can provide you with enhanced insurance coverage, it can often come with higher insurance premiums.

For example, in terms of enhanced insurance coverage, the following features and definitions discussed below are generally only available where supplementary provisions also form a component of a life insurance policy.

Please note: Life insurance policy offerings can differ between insurers, so it’s important to read your relevant Product Disclosure Statement and your individual life insurance policy for further details.

 

Supplementary provisions

Grief support benefit

A grief support benefit, upon claim or benefit payment, may reimburse the cost of counselling sessions for you (in the event of your terminal illness diagnosis) or an immediate family member (in the event of your passing).

A reimbursement and counselling sessions can be capped. For example, depending on an insurer’s life insurance policy offering, this could be up to $1,000 for up to four hours of counselling sessions.

Financial planning benefit

A financial planning benefit may reimburse the cost of engaging a qualified financial adviser to prepare a financial plan following receipt of the benefit payment (in the event of your passing or terminal illness diagnosis).

A reimbursement can be capped. For example, depending on an insurer’s life insurance policy offering, this could be the actual fee charged by the qualified financial adviser or $3,000—whichever is the lesser amount.

Funeral advancement benefit

A funeral advancement benefit, upon an insurer’s receipt of your death or medical certificate, may provide an advance on the sum insured to help with the cost of your funeral or other immediate expenses.

An advanced payment can be capped. For example, depending on an insurer’s life insurance policy offering, this could be 10% of the sum insured or $25,000—whichever is the lesser amount.

Accommodation benefit

An accommodation benefit, upon benefit payment, may reimburse the accommodation costs of an immediate family member who has to travel, for example, more than 100 kilometres from their usual place of residence to be with you—in the event of your medically certified bed confinement due to terminal illness.

A reimbursement can be capped. For example, depending on an insurer’s life insurance policy offering, this could be up to $250 per day for up to 30 days of accommodation.

 

Moving Forward

In light of the above, it’s important to take the time to understand your own life insurance policy. Being informed about your insurance cover can help in the event a claim needs to be made in the future. If you need help in understanding the finer details of your existing life insurance policy, please contact us.

Lastly, if you are considering establishing life insurance, please understand it’s not a one-size-fits-all approach. We can help you to establish life insurance appropriate to your financial situation, goals and objectives.