If you’re considering investing in a financial safety net for yourself or your family, you’ll be pleased to know that the Australian insurance market offers a range of competitively priced insurance policies. These are designed to protect people from all walks of life from the financial burdens of serious health issues. The four major types of insurance products (not including health insurance) are:
- Life insurance
- TPD (total & permanent disability) insurance
- Trauma insurance and;
- Income protection insurance
While most people understand what life insurance is and how it works, few people know much about the other types of insurance on offer – some of which may be much more suited to their individual circumstances than a simple standalone life insurance policy.
In this blog we tackle the three key differences between each of the four major insurance types, so that when you call your insurance advisor you’ll be equipped to ask the right questions and ultimately make the best decisions about your insurance needs.
What are the eligibility requirements for the different types of insurance?
Each of the above types of insurance has a set of specific criteria that affects who can and cannot apply for a policy:
- Life insurance: Anyone aged 16-65 who is an Australian citizen or permanent resident may apply for life insurance. During the application process you’ll have to answer a health questionnaire, and some (but not all) insurers also require applicants to undergo a medical examination too.
- TPD insurance: Anyone can apply for TPD insurance, but the success of your application and the cost of your premiums will be determined by your age, gender, medical history, pastimes and occupation.
- Trauma insurance: Generally speaking, people aged between 15-65 who are either an Australian citizen or permanent resident may apply for trauma insurance. Different insurers may have additional prerequisites for coverage eligibility.
- Income protection insurance: To apply for income protection insurance you must be aged between 18-60, an Australian citizen or permanent resident, and working 20 hours a week in your primary occupation for at least a year before you take out your policy. If you’re self-employed, you must have been in your role for at least two years before you can take out income protection insurance.
Under what circumstances are the different types of policies paid out?
While each of the four types of insurance discussed in this article serves different purposes, it’s vital to know that all insurance policies have very particular criteria surrounding when they are paid out and what will void a claim.
No matter what type of insurance you need, make sure you read the Product Disclosure Statement (PDS) of any policy you’re considering very carefully, and don’t be afraid to ask your advisor to clarify anything you don’t understand.
The circumstances that the major policy types are designed to cover are as follows:
Life insurance: Policies are usually paid if you die before the term of your policy ends (this is usually when the policyholder reaches the age of 99) or if you are diagnosed with a terminal illness and given 12 months to live.
TPD insurance: These policies are paid out if you become totally and permanently disabled from sickness or an accident and can no longer work. Some TPD policies are only paid if you cannot work again in your usual occupation, whereas others are paid if you cannot work again in any occupation. It’s important to check whether a “usual occupation” or an “any occupation” policy will best suit your needs, and to look closely at your insurer’s definitions of what constitutes a “disability”.
Trauma insurance: To have your benefits paid you need to be diagnosed with one of the illnesses listed in your policy, have your medical condition meet the definitions set out in your PDS, and you must not be subject to any exclusions (e.g. self-inflicted injuries, suicide, illness sustained due to acts of war or terror).
Income protection insurance: You don’t need to prove you are permanently disabled to access your income protection insurance benefits, you just need to prove that due to illness or injury you are unable to work for a period of time. When you choose an income protection policy, you’ll have to agree upon a waiting period before you can make a claim. These are anywhere from two weeks to two years, and the longer your waiting period is, the cheaper your premiums will be.
How are insurance benefits paid out?
Benefits of life insurance, trauma insurance and TPD insurance policies are all paid as a lump sum once your insurer has approved your claim.
Insurers pay income protection benefits in instalments over a set period or until you turn 70. This is because this type of insurance is designed to replace up to 75% of your net income if an injury or illness prevents you from working, as opposed to other insurance types which are designed to help cover the substantial upfront costs associated with death or disability.
Where can I find more information about the different types of cover?
To learn more about a type of insurance, just click on the link for a more detailed explanation:
Or, if you’d prefer to chat with someone about your options and get your questions answered by a real person, why not get in touch with one of our helpful advisors by dialling 1300 665 356?
General Advice Disclaimer
General advice warning: The advice provided is general advice only and in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.