As we have mentioned in countless previous articles, there are a number of different types of personal risk insurance. But do you know what type of cover you currently have in place, what it covers and most importantly, what events will lead to it being paid out at claim time?
The most usual personal insurance taken out is Life Insurance. As most people are aware, this is the cover that is paid out when the insured party dies, but most Life Insurance policies also have an in-built facility that triggers a claim payment if the insured party is diagnosed with a terminal illness. It is the easiest type of cover to understand and is taken out by the majority of people as everybody is aware of the huge impact that the sudden death of a loved one would cause. But there is a lot more confusion around some of the other commonly sold insurances as to when they can be claimed and what exactly is covered.
The key to choosing any personal insurance is to decide what you want to happen if you are affected by an accident or illness. Is it more important that your family receives a lump sum payment or an ongoing income and how long is that payment going to be received? Part of the decision making process involves making a list of what your priorities are at each stage of life and what your plan B would be to manage your financial commitments if something were to affect your health.
Health Insurance can provide you with funds to pay for private hospital treatment and specialist and diagnostic appointments and will allow you to bypass the public system waiting lists. Many workplace group insurance schemes will include this type of cover (Often along with Life cover and a small amount of Trauma insurance)
Living Assurance or Trauma cover is payable on diagnosis of a traumatic medical event, with the most common in New Zealand being for cancers, strokes and heart attacks. However, payment is sometimes withheld unless the condition is deemed to be at a serious stage, even though most people who receive such a diagnosis would say that it was serious, whatever the stage of the condition. Sometimes the medical condition may not be life threatening which would mean that the trauma cover would not be activated, but the insured party may not be well enough to work. In this situation, Temporary Disability Income cover would help to ease the financial pressure as it would provide an income while the insured party was unable to work for more than 10 hours per week. This ongoing payment is designed to replace any lost income and is therefore easier to prove if you have a regular salary but can be set up for an agreed figure for those whose income fluctuates due to self employment, commission or bonus payments. A slightly cheaper version of this type of cover is Mortgage Protection Cover and is available for those with home loans who wish to make sure that the mortgage payments continue to be met during a period of ill health. As long as there is additional income coming into the household, then this can be a more affordable form of income protection cover, but may only be received for a limited time.
For many in higher paying positions, the biggest fear is developing an illness or having an accident which may mean that they are unable to ever return to work and for this situation, there is Total Permanent Disablement insurance. This cover is payable as a lump sum to cover the loss of income and pay for expenses which may be incurred due to the major change of life that disablement can bring. The difficulty with this type of cover is in obtaining medical evidence that the illness or injury is in fact permanent and fits the exact conditions required by the insurer.
Whatever insurance you have or are looking to take out (And many people aren’t even sure what type of cover they have in place until they want to make a claim), it should provide you and your family with funds to minimise or eliminate the impact of a major health event and should be reviewed with your adviser on a regular basis to provide you with the right insurance for the maximum possible protection.
