Managing Risk to Protect You and Your Family
Managing personal risk is a process of firstly identifying the potential risk, measuring the likely financial impact if the risk occurs and putting in place plans to protect your wealth and your family’s well-being if something goes wrong.
Insurance is a way of protecting your wealth, by providing capital and / or replacement income. While insurance doesn’t remove the risk of something going wrong, it provides you and your family with financial security if something does happen.
Everybody’s circumstances are different, but insurance is important for most people and the need for insurance will change as you move through different stages of your life. Therefore, the need for insurance is not static and should be periodically reviewed to make sure you and your family are adequately protected.
There are many types of insurance such as general insurance - car, home & contents, medical insurance; and personal insurance that provides financial protection in the event of death, serious illness and injury.
Personal insurance includes;
- Life insurance,
- Total & Permanent Disability (TPD) insurance,
- Trauma insurance (or critical illness), and
- Income Protection (or salary continuance).
The amount of insurance you need is affected by:
- Your relationship status, whether you are married, de facto, single or divorced,
- Your age,
- How much you earn,
- The assets you own
- Your liabilities,
- The number and age of dependents; and
- Your employment status i.e. employee, self-employed, business partnership or business owner
Personal insurance summary
To provide a comprehensive risk plan the following insurance may be used in conjunction to ensure adequate cover in the event of death, serious illness or injury.
Life Insurance protects your family by paying a lump sum to the policy owner if you die. Life insurance payment may be used to pay off debt such as home mortgage, pay funeral costs, provide replacement income for the surviving spouse or dependent(s), provides funds for business succession. Life insurance may be purchased and held outside or inside superannuation.
Life Insurance held outside superannuation:
- Premiums are generally not tax deductible,
- The benefit payment is tax free,
- Broad range of potential beneficiaries
Life insurance held inside superannuation:
- Premiums are tax deductible for the super fund
- The benefit payment may be taxed, depending on who receives it,
- Limited range of potential beneficiaries.
Total & Permanent Disability insurance (TPD)
TPD cover provides a lump sum payment if you suffer a disability and cannot work again, or are unable to work in your usual occupation or chosen field of employment. The definition of your occupation on a policy may be either Own or Any occupation. TPD benefit payments may be used to pay off debt, provide funds to meet medical cost, cost of the modification to home or car and replacement income for the family.
TPD insurance may be purchased and held inside or outside superannuation.
TPD Insurance held outside superannuation:
- Premiums are not tax deductible,
- The benefit payment is tax free if paid to the injured person or their relative,
- TPD definition may be Own or Any occupation
TPD insurance held inside superannuation:
- Premiums are generally tax deductible for the super fund
- Super contributions made to fund premiums may attract various tax concessions
- The benefit payment may be taxed
- TPD definition can only be Any occupation definition
Trauma Insurance (or critical illness) insurance
Trauma Insurance (or critical illness) insurance provides a cash lump sum if you suffer a specified illness or injury. Advances in medical treatment have increased the need for trauma insurance, through the increased chance of surviving a trauma event such a stroke, cancer or heart attack. Surviving such an event means there is likely to be expensive medical bill and ongoing treatment as well as a period off work convalescing that needs to be paid for. Trauma insurance is usually purchased as a standalone policy but can be purchased with additional options such as TPD benefit.
- Trauma insurance is generally not held within superannuation.
- Benefits are tax free
- There is no restriction on how you use the payments
Income protection insurance (or salary continuance)
Income protection insurance (or salary continuance) provides a monthly payment to replace generally up to 75% of your gross salary if you are unable to work due to injury of sickness.
You are able to stipulate the benefit period e.g. 2 years, 5 years or to age 60 or 65. The longer the benefit period selected the higher the premium paid for the policy.
- Income protection can be held within or outside superannuation
- Premiums are generally tax deductible
- Payment received are considered as income and are subject to tax