Types of Life Insurance
There are four main types of life insurance: term life, total and permanent disability, income protection and trauma. You can often link your life insurance policies together to create a cost-effective package.
In most cases you can opt to buy your life insurance through your superannuation fund or SMSF to benefit from substantial tax savings.
There is also a range of similar life insurance products available for businesses: key person, buy / sell or shareholder protection, business overheads, and loan protection insurance.
Term Life Cover
Sometime also called death benefit, Term Life Insurance is an insurance which takes care of your dependents if you die. It is there to make sure that your family has financial security even if they lose you.
This is a low-cost alternative to term life insurance, sometimes purchased as an add-on to other types of insurance, to pay for the costs of your funeral.
The other three main types of life cover are known as 'living insurances'. They protect you should you suffer from a serious illness or injury during your lifetime. They help you pay for medical expenses or free yourself from debt, and provide a safeguard in case you are unable to earn money for a while—or even forever.
Income Protection Insurance
This type of insurance provides regular payments to replace some of your income should you be unable to work for a short period after an accident or illness.
This cover pays a lump sum if you suffer from one of a defined list of serious conditions, even if you can still work.
Total & Permanent Disability (TPD)
TPD Insurance pays a lump sum if you become permanently unable to work. The payment is linked to whether or not you are still able to earn money, rather than the type of illness.
If you run your own self-managed own superannuation fund (SMSF), purchasing through this fund can be a very cost-effective way to purchase life cover as you can benefit from substantial tax savings. Your insurance proceeds will be distributed with your superfund assets when you die.
SMSF TPD Insurance
These policies can offer you considerable savings on your insurance premiums, but there can be some pitfalls such as delays in accessing your benefits. Some policies allow you to split your TPD benefits so that only some elements are held within your SMSF.
SMSF Income Protection
Offers tax savings which could effectively increase the percentage of your income which you can preserve if you suffer from an illness or accident.
SMSF Trauma Insurance
This may be appropriate for some people, although it is not generally recommended since there can be obstacles to accessing your benefits when you need them. Many insurance companies offer linking or packaging options so you can hold your trauma insurance direct, but combine it with term life or TPD insurance held within your SMSF.
Business Expenses Insurance
is a form of short term income protection which enables you to keep your business afloat while you are unable to work and generate business income. It generally pays the fixed overheads of your business for up to a year.
Key Person Insurance
is a type of TPD insurance which protects your business from the devastating impact of losing an essential member of the team, either temporarily or forever.
Buy / Sell Cover
is a form of succession planning which offers protection to the owners of small businesses or partnerships. It consists of a contract, and a lump sum payment to finance it, allowing the partners to buy out each other's share at an agreed price if they are no longer able to work in the business.
Shareholder Protection Insurance
is a kind of buy / sell cover designed for proprietary companies. It allows the shareholders to keep control of their company, by enabling them to buy each other's shares at an agreed price if someone dies or needs to sell due to sickness or injury.
Loan Protection Insurance
is form of key man insurance directly linked to a business loan or lease. It is an economical insurance which ensures your business will be able to meet a specific financial obligation.
Getting the right combination of policies for to meet your needs is critical. You need to know that your insurance covers you for the illnesses or injuries you are most likely to experience – as well as the things you just didn't see coming. You also need to be sure that you have the most appropriate, tax efficient and cost-effective life insurance structure for your individual circumstances.
We can help you make the right choice, or put together a customised package for you. Contact us today for free, independent insurance advice.
How to buy Life Insurance
The best way to get life insurance is always via a specialist advisor. Not only can they find you the cheapest policies, but more importantly they're able to identify the insurance cover which best meets your needs.
We work with all the leading providers of Life Insurance in Australia. Our advisors can tailor your life insurance individually for you, using products from any of the leading life insurance companies in the market.