Wealth Protection Insurance Explained
Wealth Protection Insurance Explained
Wealth Protection Insurance comprises of four different types of insurance designed to protect you and your loved ones if you are injured, suffer from illness or in the event of your death. The four types of wealth protection insurance are Income Protection Insurance, Term Life (or death) Insurance, Total and Permanent Disablement (TPD) Insurance, and Trauma (or Critical Illness) Insurance. We will explore each of these insurances in detail.
Are you of the common belief that “it wont happen to me”. This often results in many people having sound wealth creation measures in place, but not an adequate plan to protect the very thing that generates the wealth. Your most important asset is you and your capacity to generate income over a sustainable period.
Income Protection Insurance
Your capacity to earn an income is your greatest asset. All of the assets you have acquired or will acquire over your lifetime are a direct result of your ability to earn an income. Income Protection Insurance protects this asset by providing ongoing income in the event of a sickness or disability that prevents you from working. After a specified waiting period, it pays a monthly benefit of up to 75% (or 85% to cover superannuation contributions on some policies) of your current income for a specified period up to the age of 65.
Consider someone in their mid 20′s earning $52,000 per annum or $1,000 per week. Assuming this income does not change this person will earn over $2 million by age 65. Now consider this statistic; 7 out of 10 people insure their cars, worth approximately $30,000, but only 1 in 10 people insure their income, worth over $2 million! *Source: AXA/AC&L Income Protection claims as at 31st December 2005.
Term Life Insurance
Term Life Insurance will pay a lump sum in the event of death or if you are diagnosed with a terminal illness. This lump sum is designed to prevent unnecessary financial pressure for you or your family in this time of need. While money will never compensate of the emotional loss of a loved one, it will elevate financial stress.
There are three main financial priorities that you or your family will face in the event of losing a loved one. These are covering the funeral and other associated costs, mortgage repayments, and ongoing living expenses for those left behind. The lump sum benefit of Term Life Insurance can be designed to help with the repayment of debts, the covering of future expenses (for example, the cost of your children’s educate or long term care), or to boost retirement savings for a serviving spouse.
TPD Insurance
Total and Permanent Disability (TPD) insurance will pay a lump sum benefit in the event you suffer an injury or illness which leaves you totally and permanently incapacitated and you are unable to return to work. If you suffer this fate it is likely you will face a range of financial pressures. For example, in addition to losing your income, you may have to pay for expensive medical and rehabilitation costs. You may also be many years away from retirement, and losing your income will reduce your ability to save for your expected retirement years. This lump sum is designed to alleviate these pressures.
Trauma (or Critical Illness) Insurance
Trauma (or Critical Illness) insurance pays a lump sum in the event you are injured or are diagnosed with one of a variety of medical conditions. These ‘Trauma’ events include heart attack, stroke, or cancer, however you must survive a specified period of time before the insurer will pay the claim.
The purpose of Trauma insurance is to pay a lump sum benefit to cover medical costs and make the appropriate lifestyle changes after suffering the condition. The Trauma event can also be designed to alleviate financial pressures while you recover such as paying mortgage repayments for a specified period.
Statistically, 1 in 3 females and 1 in 2 males will suffer a Traumatic event which will effect their income earning ability.
Disclaimer: Before applying for any Wealth Protection Insurance products you should seek qualified, independent financial advice to ensure the product and level of cover is appropriate for you based on your financial needs, goals and objectives.