A beginner’s guide to life insurances

If you need life cover, you might be overwhelmed by the varying types available. How much cover do you need to be sure of avoiding nasty surprises? Could you pay for more cover than is absolutely necessary? If you’re interested in “lump sum" personal insurance (insurance that pays a "lump sum" once a claim is approved) you may be after Life Cover, Total and Permanent Disability cover or Trauma insurance. These sombre but vital forms of cover are explained in more detail in this guide – each has certain limitations and benefits, often particular to each individual policy.

Life Cover

Given the traumatic circumstances under which a claim would be made, no one likes to think about Life Cover. However, despite the morbidity of the subject, Life Cover can provide an invaluable lifeline to a grieving family. Life Cover provides a lump sum benefit payable upon the policy holder’s death and these policies are generally renewable each year. This means that the premium is calculated each year and will normally increase as you get older. When the benefit becomes payable, it is normally paid to the dependents or your estate. This lump sum could be used to repay debts and/or be drawn upon to create income, thus helping your family to maintain their lifestyle. In addition, it will help you to keep your family’s plans on track and pass an investment asset to your family.

Term life insurance, as the name suggests, is a type of Life Cover policy that offers coverage for a limited term. The rate of regular payments on a Term Life policy is fixed for a specified period of time and once the term expires the policy holder must either renegotiate terms for further coverage or forego coverage.

Trauma

This form of insurance is available either as an optional benefit on a Term Life insurance policy or as a standalone policy. A trauma payment is likely to be paid should you suffer any of a number of covered conditions, which may include (but are not limited to) heart attack, stroke, cancer, paraplegia, multiple sclerosis, Parkinson’s disease, chronic liver, lung and kidney disease. The lump sum could be used to cover debt reduction or elimination, or to cover costs related to making lifestyle adjustments including necessary home or car modifications, medical treatment costs, work alterations and peace of mind.

Total and Permanent Disability (TPD)

Total and Permanent Disability (TPD) insurance is normally available as an optional benefit on a Term Life or Trauma policy. TPD cover allows for a lump sum to be paid out if you become permanently disabled in an accident or via an illness. There are limitations however; you must be disabled to such an extent that you are unlikely to ever engage in either:

Your own occupation; or
Any occupation

The first definition is a more beneficial policy to be assessed under however it is also likely to be the most expensive. The second definition is more restrictive in that it prevents the undertaking of all occupations to which you may have been suited by education, training or experience.

Many of the features of Term Life insurance will apply equally to TPD. The sum insured is payable in the event of TPD and is generally restricted to being no more than the death benefit. The lump sum could be used to help pay for debt reduction/elimination, income generation and all aspects of permanent disablement.

Life Cover is too important a thing to get wrong – chat with your insurer about the type of cover you need and seek independent advice if you’re not confident that advice is impartial. Life Cover, Trauma Insurance and TPD cover are not policy types people enjoy undertaking, but they can make the world of difference should the unexpected happen.