For the typical investor, their biggest asset isn’t their house or their share portfolio. The biggest asset for almost every Australian is their ability to earn an income.
Let’s do the maths: According to the Australian Bureau of Statistics’ November 2016 survey, the average full-time wage for an Australian is approximately $75,000 and most of us will work for around 45 years.
Therefore, the average lifetime earning potential for someone in Australia is around the $3 million mark. This is why life insurance is important.
Life insurance pays a lump sum of money when you die to the people you nominate as beneficiaries. This lump sum can be used to help repay debt and cover living costs for your partner or dependents.
The purpose of trauma insurance is to provide you with a lump sum that can cover medical costs, loss of income and changes to your lifestyle after suffering a critical illness or serious injury. The policy could cover any number of events such as heart attack, stroke, cancer, heart bypass surgery, paralysis and major head trauma.
Unlike the other forms of life insurance, income protection does not pay out a lump sum, rather as an income stream. Income protection insurance pays up to 75% of your pre-tax income for a specified time if you’re unable to work due to partial or total disability to help cover living expenses and debt repayments.
Total & Permanent Disability
Total Permanent & Permant Disability (TPD) insurance pays a lump sum if you become totally and permanently disabled because of illness or injury. This policy can assist with repayment of debts, living costs and medical and rehabilitation costs. Each insurer has a different definition of what it means to be totally and permanently disabled. It can cover you for either:
You’re unable to work again in the job you were working in before your disability. This cover is more expensive and is usually only available outside super.
You’re unable to ever work again in any job suited to your education, training, or experience. This cover is cheaper but has a higher threshold to claim, so it’s less likely to pay out.