Your life insurance

There are several different types of life insurance. Some are investment-type funds where you contribute over a certain time and get back your investment plus interest earnings at the maturity date.

Others are designed to cover risk - things that could happen to you. This type of insurance can provide protection for you and your family should something unforeseen and unfortunate happen.

Not all brokers deal with life insurance. If you want to find a specialist in this area, select "Life" in the specialties list. Professional insurance advice can help because premium costs vary considerably as do the various policies and definitions, exclusions and benefits. It pays to know what you're covered for when it comes to something as important as your life.

  • Income Protection or Disability Insurance: Your earning capacity is usually your greatest asset, but not everyone thinks to insure it. This cover can insure 75% of your normal income if you are prevented from working through sickness or accident. It's particularly suitable for self-employed people, and full-time employees for sickness and accidents that occur outside working hours.

    There are different policies available with different definitions of disability. Some have time limits, some include accident but not sickness and some are not guaranteed renewable when you get to a certain age. There are also different definitions of work. For example, some provide cover if you can no longer do your usual job, while others only provide cover if you are unable to do work of any kind. Some are indexed to inflation, others are not and so on.
  • Trauma Insurance: Unlike income protection, trauma insurance provides a lump sum when you are diagnosed with one of several specified life-threatening illnesses such as heart attack, stroke, cancer or one of the other sicknesses listed on the policy.

    Some features to watch out for are: (a) the sicknesses and injuries specified vary from policy to policy; and (b) not all illnesses are covered, usually only the major terminal ones.

    This cover is not a replacement for income protection, it should be viewed as an additional extra to be used to pay off debts and for rehabilitation purposes.
  • Term Life Insurance or Whole-Of-Life Cover: This insurance pays your dependents a lump sum if you die.

    Term life insurance is renewed each year and tends to increase in price as you age. Whole-of-life cover is based on level premiums throughout but is more expensive because it includes a form of compulsory saving in the premium.

    Some insurers don't guarantee future premium rates and in some cases, the first year's premium may be discounted significantly.
  • Total And Permanent Disability Insurance: Also known as TPD, this provides a lump sum only if you are totally and permanently disabled before retirement. Because of this, it is no replacement for income protection. It is often sold as an add-on to another policy such as personal accident or provided as an extra benefit under a superannuation scheme.

    Still, the conditions vary from policy to policy. Some definitions of disability are more restrictive than others, the payment is not always provided in a lump sum and sometimes comes in installments over several years. Also, life cover usually ceases if a lump sum is paid out, leaving no money for dependents.

Life insurance advice and information is only provided as a guide, professional insurance advice should be sought from a qualified insurance broker.