In the Financial Planning world, personal insurance most commonly refers to four insurance types which cover personal injury or illness, and either provide the insured person with an ongoing or lump-sum payment.

These are Life Insurance, Total and permanent disability (TPD) Insurance, Income Protection Insurance, and Trauma Insurance. These are broken down further below: 

What does each type of insurance include?

1. Life Insurance

A lump-sum payment is paid in the event of your death (or, with certain policies, if you are diagnosed as terminally ill).

2. TPD Insurance

A lump-sum payment is paid in the event that you are totally and permanently disabled. TPD policies can be ‘own’ occupation or ‘any’ occupation.

‘Any’ occupation insures you when you are totally and permanently disabled, and unable to work in any occupation you are suited to based on education, training or experience. This option may be more difficult to satisfy in the claims process and you may be expected to return to work in a different role, industry and/or capacity.

‘Own’ occupation insures you when you are totally and permanently disabled and unable to work in your usual occupation or industry. This option may be easier to satisfy during the claims process.

3. Income Protection Insurance

Ongoing payments (sometimes weekly, fortnightly or monthly) are made to you in the event you are injured or ill and unable to work either temporarily or indefinitely.

4. Trauma Insurance

A lump-sum payment is made to you in the event you suffer a major illness or injury. Some insurers also offer Child Trauma which allows you to insure your child should they suffer a major illness or injury.

What can each type of insurance be used for?

1. Life Insurance

Life insurance can be used to clear debts (such as a mortgage on the family home, personal loans or credit card debt) or to provide an ongoing income to your surviving family (such as your spouse and/or children).

2. TPD Insurance

TPD insurance can be used to clear debts or fund ongoing medical expenses/care needs and pay for modifications to your home (if required).

3. Income Protection Insurance

Income Protection insurance is used to replace lost income. Insurers generally only allow you to insure up to 75% of your pre-disability income to encourage you to return to work.

Payments are often used for general living expenses while you are claiming.

4. Trauma Insurance

Trauma insurance can be used to clear debts, provide some financial relief for you/your family and fund medical expenses/care.

Who needs personal insurance?

How long is a piece of string?

Whether you need personal insurance depends on your own personal situation. Your Newcastle financial planner will explain how the type of insurance, the amount needed and the specific features you require as part of your insurance policy may be informed (but not limited to) the following factors:

-        If you have a spouse and/or children you want to be cared for

-        If you have debts you wish to repay or assets you wish to retain

-        Your attitude towards risk

-        Your occupation and working hours

-        Your health and pre-existing conditions

-        Affordability and cashflow

It is important to discuss all of the above insurances with your financial adviser to determine if any are appropriate for your situation. Your adviser can guide you to help determine your appropriate levels of cover and policy features, and support you through the application process.

Our team of specialists are here to help

To ensure you are equipped with everything you need to make an informed decision, get in touch with the Newcastle-based Rethink Financial Planning team for personalised advice from our financial planners. Together, we will work through the pros and cons and decide on the right strategy for you.

Contact us on 02 4962 4440 or you can fill out our Pre-appointment Questionnaire here and one of the team will be in touch.

Keep an eye on our future blog posts for more detailed information on each type of insurance mentioned above. 

Any information provided on this website is general advice only and does not take account of investors’ objectives, financial situation or needs. Before acting on this general advice, investors should therefore consider the appropriateness of the advice having regard to their objectives, financial situation or needs.