Which Type of Life Insurance Is the Smartest for You?

life insurance medical idIn Australia, the term ‘life insurance’ refers to several different types of insurance. From term life insurance to income protection, each one offers some level of financial support. Your insurer pays out money if a serious life event occurs. These events include disability or illness. Life insurance also protects your loved ones if you pass away.

It’s wise to have at least one type of life insurance. Many people use more than one. Which type is right for you?

You may want to choose a certain type of life insurance depending on factors like your life stage, family size, and your finances. Here’s a look at your options.

When Does Each Type of Insurance Make Sense?

Insurers in Australia no longer offer whole life insurance. This is because the money you save in superannuation offers a similar financial protection. Still, you should consider one or more of the following to make sure you and your family will be okay no matter what happens.

Should you come down with an illness that makes it impossible to work for a few months – or a few years – how will you pay your bills? What will happen to the mortgage? If you have dependents, what will they be left with when you die?

The goal of life insurance is to ensure there is enough money. Here are the different types of life insurance to choose from to help you reach that goal.

Term Life Insurance

Term life insurance is also simply known as life insurance. How does it work? You, as the policy holder, make premium payments over a set term. If you die or become terminally ill within that term, your insurer pays a lump sum to your loved ones. If a doctor diagnoses you with a terminal illness, the insurer will pay the money before you die. This can make it easier to pay for medical care.

Life insurance isn’t tax deductible. It does have tax advantages, however. Your loved ones won't pay taxes on the payout.

Who needs term life insurance? This type of protection is sensible when you have children, a dependent spouse, or aging parents who need your financial assistance.

Total and Permanent Disability Insurance

Known as TPD, you purchase this type of life insurance as an add-on. If you end up with a serious injury or illness, you may not be able to work again. With TPD, your insurer will pay out a lump sum. The money can be used to pay for medical care, to pay off loans, or anything else you need.

Should you purchase TPD in addition to term life insurance? A lot of Australians assume workers’ compensation will protect them and they don’t need TPD. However, statistics show, not everyone who is injured at work receives workers’ comp. Also, what if your illness or injury isn’t workplace related? Then, you’ll be in trouble if you don’t have TPD or another form of cover.

Income Protection

life insurance medical idIncome protection is a good idea if you are self-employed. This is because you aren’t eligible for workers’ compensation. If you can’t earn an income because of an injury or illness for a period of time, income protection will pay out a percentage of your income.

If you don’t have a large amount of savings or an emergency fund to cover your expenses for a few months, income protection can serve as a financial buffer. This is true whether you are self-employed or not.

Premiums are usually tax deductible. Keep in mind, payouts your insurer gives you are taxed like income.

Trauma Insurance

Like TPD, you buy trauma insurance as an extra. You can get additional protection and additional peace of mind.

What does it cover? Each policy is different. In general, trauma insurance – also known as critical illness – provides a lump sum payout to help cover expenses in the event of a serious illness. These illnesses include cancer, a stroke or a heart attack.

Like term life insurance and TPD, the premiums are not tax deductible. But, you won't pay taxes on the payout.

All Types of Life Insurance Offer This

All types of life insurance offer something important. The whole concept is to give individuals affordable protection. Money – through your premiums – is pooled together with the premium payments of other people with similar circumstances. Then, if something does happen, money is there for those who need it.

As a result, you can live your life without having to ever worry about losing everything. Or, worrying your family will experience hardship.

Without some type of life insurance, you’d have to save enough money. Dollar by dollar, you’d need to build hundreds of thousands of dollars to get the same level of protection that life insurance offers.

When you pool your resources, everyone wins. What a lot of people don’t think about is how insurance premiums are directly connected to our individual actions and preventative health choices.

Individual Choices Do Impact Premiums and Insurance Costs

life insurance medical idBecause insurance is basically a shared group benefit, when people in the group focus on protecting their health more, everyone in the pool benefits. This is because the pooled numbers, or statistics, change. When the likeliness of payouts goes down, so do the premiums.

Taking preventative steps leads to less catastrophic event payouts overall. This means fewer costs for insurers. As a result, your insurance premiums will also go down.

A preventative approach is affordable for everyone. Something as simple and low-cost as insurers encouraging their customers who have certain conditions, like allergies, diabetes or heart disease, to wear medical IDs could push down the number of heart attacks, trauma, and even deaths. A medical ID like a Mediband custom silicone bracelet costs about the same as a cup of coffee!

Imagine how much everyone would save in the long-term, both customers and insurers. This is not to mention preventing human loss. And all for an inexpensive, convenient preventative step.

Smart Insurance Choices and Smart Health Choices

When it comes to choosing the right type of life insurance for your budget, it’s always a good idea to make sure there will be enough money if the worst were to happen. It’s also smart to take easy, affordable steps to help reduce your chances of a traumatic life event or preventable death.

Eat a healthy diet and exercise. Avoid risky lifestyle choices like smoking and unsafe driving. And, wear a medical alert bracelet to let people know of any existing medical conditions or risks. It could save your life. Major pharmaceutical trials now use mediband medical alert bracelets to keep their patients safe.  More importantly, it could save your loved ones from having to live the rest of theirs without your help.  Looking for health insurance but having a hard time understanding the multitude of terminologies on offer? You might want to have a look at out previous blog on Understanding Health Insurance Terms here.

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