Each policy protects different risks; sometimes, you can claim on multiple policies. For example, a cancer diagnosis would typically (but not always) result in a trauma protection policy claim and an income protection claim. Or a degenerative disease may start with a trauma policy claim and then progress into an income protection claim and total and permanent disability (TPD) claim.
Overview
Life Insurance
Life insurance is relatively self-explanatory. It will pay a lump sum upon the death of the life insured. We think of life insurance as “fulfilling a promise” to our loved ones. We fully intend to live long, healthy lives and provide wealth and security for our families.
If someone passes away prematurely, their life insurance policy fulfils this wealth and security for those left behind. Also, remember that when a person passes away, so does their income. This makes having the additional cover on the primary (or sole) income earner even more imperative.
Total & Permanent Disability (TPD) cover
If someone suffers an injury or illness that renders them unable to work again, there is a significant financial consequence. Also, depending on the injury or illness, there may be considerable additional costs for medication, rehabilitation and ongoing treatment. Fortunately, a TPD claim is the least likely area of claim. However it is still essential.
For example, who would pay off the mortgage and other loans if a family’s primary (or sole) income earner suffered a TPD event? How would you provide for all the additional medical costs? Could you still afford to send the kids to the private school you had always intended? TPD is also paid out as a lump sum.
Income Protection
As its name suggests, income protection protects a person’s income and pays out when the insured cannot work due to illness or injury.
Depending on individual circumstances, there are options around waiting periods (i.e. how long to wait before funds are paid) and benefit periods (i.e. the total period in which a claim will be paid). Income protection can pay short, medium, long-term and indefinite periods where people cannot work. That is, it can be a temporary type of claim, or if someone finds themselves TPD, they will receive funds equal to their benefit period.
There is also another form of income protection that certain businesses can use. This protects and pays a business’s ongoing costs (to keep it running) whilst the insured can’t work in it themselves due to illness or injury.
Trauma / Critical Illness cover
Trauma cover provides a lump sum to take financial pressure away whilst someone takes time to focus on healing and recovery. The “big three” areas of claim are heart attack, stroke and cancer. This type of policy covers you for about 50 specified events, including “the big three”, burns, paraplegia, loss of sight/speech/hearing, multiple sclerosis, Parkinson’s, and motor neurone disease, amongst others.
