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What life insurance types are there?

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Not all life insurance is the same. Here are the 4 types of cover you’ll probably want to know about.


When it comes to life insurance, there’s no shortage of misconceptions. A popular one is: “I’m young and healthy so I don’t need life insurance”.

The reality is that life insurance can come in handy at any age. Some policies will help you cover your bills, pay your mortgage and cover medical expenses if you can’t work because you get sick or injured. Other policies help preserve the financial situation of your loved ones if you pass away.

Among the hundreds of life insurance policies and plans Australians choose from every year, most can be categorised as one of four types: Life, Trauma, TPD and Income Protection.

1. Life Cover

Life Cover pays a set amount of money when you die to whomever you have nominated as beneficiaries of your policy. 

It’s designed to help with debts and provide a lump sum to replace the income you would have earnt in the future. Your foresight can help pay off your mortgage, provide for your children’s education and maintain your family’s lifestyle.

It’s not just the breadwinner who needs insurance cover. If something were to happen to the stay-at-home partner, childcare could become a significant financial burden unless both spouses have Life Cover.

Also known as Term Life or Death Cover, you can think of it as your ‘peace of mind’. 

2. Trauma

Trauma insurance doesn’t wait for you to die before it pays you a benefit. Its pays a lump sum to support you if you have a major illness  that will have a significant impact on your life. The payment can be used to help meet medical expenses, clear debts or provide an income stream if you stop working.

Also known as critical illness cover or recovery insurance, it has clear benefits if you have a family history of certain medical conditions. It also protects against the unexpected – like cancer or heart attack – where the costs of specialists, scans and tests exceed private health rebates.

Critical medical issues can result in a massive scale of costs, ranging from ongoing therapy to special transportation and housing adjustments. Without the protection of Trauma insurance, these costs can be significant.

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3. Total & Permanent Disability

Total and Permanent Disability (TPD) pays a lump sum to help cover the cost of rehabilitation and debt repayments if you become totally and permanently disabled. This includes costs incurred during medical treatment, as well as contributing to a future income stream.

It’s important to know exactly what you’re getting from your cover, because the definition of total and permanent disability varies. A common definition is that you aren’t physically able to undertake your current occupation – for example, a surgeon who loses their sight can’t perform surgery. Or it means you can’t work in any field because of your condition – for example, a back injury or a serious mental health condition. 

Either way, TPD requires a serious level of disability with the prospect of never working again. For this reason, Trauma and Income Protection are often recommended alongside this cover because they allow a lower threshold of injury/illness when making a claim. 

Did you know? 

Some types of insurance are included automatically in your superannuation – usually Life and TPD, and sometimes Income Protection. But it’s up to you to check if it’s right for your situation, and if the cost is appropriate. 

You can also purchase personal insurance through a Wealth Manager. It could be a standalone life insurance policy, or you can bundle Life, Trauma, TPD and Income Protection together as a package.

See our next e-News for details.

4. Income Protection

Income Protection insurance provides a monthly income stream if you are unable to work for a period of time because of injury or illness. Depending on the insurance provider, this payment could be up to 75% of your current income. 

You can choose from different options when taking out income protection cover, such as the length of the waiting period before you make a claim. The timeframe over which the policy will replace lost income also varies, with some policies replacing your income for two years, while others provide for you until age 65.

Our Yellow Brick Road Wealth Managers can talk you through the details of these four policy types. We’ll help you separate fact from fiction, and determine the right level of cover for you and your loved ones.  



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