Choosing the right type of insurance to cover for a potential medical emergency or incapacity can be challenging. If you’re under 30, have no dependant family or major obligations and are fit and healthy, the idea of taking out insurance against your future earnings has probably not even crossed your mind.
But income protection insurance might not be the only consideration you should make. The reality is that accidents happen and people do get unexpectedly ill, even when young and healthy.
While it’s true that income protection insurance will cover your earnings for a period of time in the event of a major illness or injury, the reality is that most income protection claims cover for a period of one to two years before the insured person returns to work – if you’re young, that might be a risk you’re prepared to take. However, what if you incur an injury that results in you not ever being able to go back to work? Or what if you suffer a serious illness that results in significant medical costs as well as reduced work capacity?
In these instances, there are other insurance products that might be worth considering and, if you’re young, will be quite affordable – specifically Total and Permanent Disability (TPD) and Trauma or Critical Illness insurances.
Here are some statistics to help you in your considerations:
- Around 786,000 Australians experienced a health condition resulting in time off work and income support from a government or private source during the 2015/16 financial year.
- To put that into context, this was about 50,000 more than the number of unemployed people as at June 2016.
- At least a further 6.5 million people accessed sick leave for short-term illness.
So, what are the differences between these insurance products?
Income Protection Insurance
Income Protection insurance will replace the majority of your income if you’re unable to work due to illness or injury. Protecting regular income is at the heart of sound financial planning.The reality is that you are likely to suffer a health condition at some point in your working career that may take you to a financially challenging place.The question then becomes, can you afford to go for a period of time with no income? If you are notable to, having your income protected provides you with significant peace of mind so that you can focus on getting better.
Total and Permanent Disability Insurance
Total and permanent disability (TPD) insurance provides lumps sum cover if you are totally and permanently disabled. It will help cover the costs of rehabilitation, debt repayments and the future cost of living.
TPD insurance will usually apply either if you can’t work again in any occupation, orcan’t work in your usual occupation.Each insurer has different definitions of what is and isn’t considered to be totally and permanently disabled so it pays to scrutinise the policy in detail.
Trauma or critical illness insurance is designed to pay you a lump sum to cover immediate medical expenses and other financial needsin the event of a defined group of the most critical illnesses. The most common claims are for cancer, heart attack, coronary bypass, and stroke although most policies will also cover a longer list of other serious illnesses.
In the event a significant trauma did occur, there are significant potential financial implications over and above the medical costs.
Trauma or critical illness cover does not rely on your ability to work in order for a benefit to be paid. This is particularly relevant when people may be going through cancer treatment but are not completely disabled or disabled from working enough to satisfy an income protection waiting period.
It is also worth considering that, even if you do have income protection insurance, it will only cover a proportion of your income and may take some weeks to start paying. Trauma insurance pays a lump sum at the point of diagnosis without any waiting periods.
Other issues may be if your partner has to give up work to support or care for you, or if your treatment requires substantial travel and accommodation costs. Similarly, there can be significant outgoings for equipment or even home renovations.
Being young, confident, healthy and feeling bullet proof is a marvellous thing. But the reality is that no one is unsusceptible to a serious illness or injury that can derail your life plans.
The above three products fit well together and compliment each other for the vast majority of circumstances.
- Trauma can provide immediate financial aid regardless of whether you miss work;
- Income Protection provides financial aid for the relative short-term (1-2 years); and
- TPD provides long-term protection
Even if you think income protection or TPD insurance aren’t for you, consider trauma insurance and hedge against the unpredictable.
Trauma insurance can be bought for a much smaller premium that IP/TPD. For example, a 30 year old female office worker would pay as little as $18 p/month for a $50,000 Trauma benefit. Aspect Underwriting offers standalone Trauma cover, get a quote here.