The initial sum insured may be eaten into by inflation as time passes. Most companies allow escalation of the benefit in line with inflation or a set percentage increase without the need for further medical examinations or paperwork. The increase in the benefit each year is optional and can be refused.
What appears to be a cheap premium today may turn expensive if the insurance company you are with penalises older age groups more than other companies. Some companies offer discounts to new customers but after the first year or two these drop off and you can find yourself on a higher premium. Other companies offer loyalty discounts, which can make the overall cost over 5 or 10 years significantly less. Using theCompare Insurance Quotes Onlinefeature of this site, you can graph the current premium structures over 5 years and compare the competitiveness of the policy over the longer run.
Beware the so called “cheap” offers of insurance which are advertised heavily. Remember the size of the premium varies directly with the amount of cover taken out. Small premiums usually mean small amounts of cover eg $50,000 to $100,000 which in the event of your death may be grossly inadequate to meet your family’s needs. To compare like amounts of cover from all the leading insurance companies use theCompare Insurance Quotes Onlinefeature.
Your superannuation fund may include automatic cover for term life or TPD disability insurance up to a certain amount. However this default level of cover may be inadequate for your needs and in some cases the amount will reduce as you get older. The super fund may offer a facility to “top-up” your cover for an additional cost but this may require underwriting of your health.
Due to the “pooled” or group nature of this form of insurance, the default premium charged will generally favour the older members of the Fund or those with pre-existing health problems who would normally be penalised by life insurance companies. Healthy, younger members are in effect subsidising these groups and may find purchasing cover as an individual from an insurance company to be more cost effective.
Other issues to consider are: potential delays in the payment of claims, the right of the Trustees of super funds to override your choice of beneficiary and the lump sum tax which will apply to any payout where the beneficiary is not a dependant (unlike for an insurance company payout). These and other issues are considered in ourlist of potential disadvantages of superannuation insurance compared to policies outside super.
Of course, if you are self employed or run your ownSelf Managed Super Fund(SMSF) you will need to ensure that insurance is part of your business planning.
Check the terminal illness section of your life insurance policy. Does the company offer early payment of all or part of your benefit in the case of the diagnosis of a terminal illness? Does the insurer require that you to have 12 or 24 months left to live? Receiving a terminal illness payout could significantly improve your quality of life and ease the burden of medical bills and other commitments on your family prior to your death.
TPD definitions do vary between companies but the differences between the two types of TPD cover can be broadly described as follows:
Own Occupation – You will be paid if by reason of accident or injury you are unable/unlikely to work ever again in your own or normal occupation.
Any Occupation – You will be paid if by reason of accident or injury you are unable/unlikely to work ever again in any occupation for which you are reasonably suited by education, training or experience.
“Own” occupation definitions are generally preferable given that an injury such as loss of one hand may disable a surgeon under such a definition, but under an “Any” occupation definition may leave him able to perform the duties of a GP at a much reduced income and therefore not qualify for the benefit. However the “Own” occupation definition is more expensive and may not be available for all occupations.
Some companies offer other “home duties” and “modified” definitions of TPD.
Usually only ONE TPD benefit is ever payable to an individual and payment of a claim for TPD will usually void your linked death cover.
After a payout you may become uninsurable and no longer able to obtain life insurance, TPD insurance,trauma insuranceorincome protection insurancecover from any insurer. In this case it is important to have sufficient cover to enable you to live out your remaining life on the proceeds of the claim.
Some insurers offer a TPD buyback option (this may be included at no cost or require an additional premium) which enables the death cover to be reinstated twelve months after the TPD claim.
