Most Australian families have some level of life insurance cover, but what most people might not realize, is that they barely have adequate cover to continue their mortgage payments and daily living expenses, on top of their medical bills in the event of a serious illness, accident or even death of the main breadwinner.
According to the Australian Bureau of Statistics three in four people will be diagnosed with a serious illness during their working life. That’s a sobering statistic and some serious food for thought on how to stay on top of financial obligations when a household’s main income earner is no longer capable of providing for the family.
Typically a majority of Australians have only low-level life insurance cover like the default coverage in a super fund. Unfortunately, most people are unaware that this type of life insurance only covers about 20 per cent of their income, which could leave an average family well short of meeting their financial commitments if faced with a tragic situation.
Here’s another sobering statistic, according to an insurance industry study only 56% of a family’s income is actually covered by life insurance while the recommended level is 80 per cent.
To really get the most out of life insurance and be covered for all of life’s contingencies, understanding how life insurance works can help you decide on what type of cover will best suit you and your family’s needs.
Typically life insurance is made up of four main components: death cover, total and permanent disability (TPD) cover, trauma cover and income protection. How you incorporate these components into your life insurance policy can make all the difference on how much cover you receive.
Most people will have life insurance that incorporates either or a combination of death, TPD or trauma cover. This type of cover applies to very specific and extreme situations paid in a lump sum.
But what happens if you become seriously ill or sustain an injury and although you are recovering or in the process of rehabilitation, are still not able to earn an income?
Your death, TPD or trauma life insurance policy doesn’t provide temporary illness cover, but income protection does.
Income protection insurance provides up to 75% of your regular income if you are unable to work due to sickness or injury. It’s paid weekly that way you can continue mortgage payments and cover your daily living expenses without it affecting your other savings or investments.
A life insurance policy that incorporates income protection cover up to 75% of your salary combined with death, TPD and trauma cover at 25% of your salary, gives you total life insurance cover for all of life’s contingencies and peace of mind.