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Personal risk protection

Life Insurance – personal risk protection

Life insurance products have been designed to provide personal risk protection from the financial consequences of events that can be disabling with physical effect, impacting on our financial well-being; and on our wealth accumulation strategies. Some of the personal risk that we take each day may be unavoidable. Risks to our health such as catching viruses or contracting infection or disease; or to our physical well-being including accidental injury, maiming etc, will affect most of us at some time or other.

The financial plight of those who are affected by the fact that we suffer a temporary – or permanent – disability by one of these events can be minimised, if not avoided altogether.

Financial impacts – personal risk protection

It has been well documented that Australians generally, are critically under-insured. Disappointingly, much of the under-insurance is because a significant portion of the population is uninsured; and a further substantial number are not insured with the appropriate amount of cover, under the types of policy available to meet their most likely needs.

Some of the reasons given by people when pressed for a reason as to why they are uninsured include that:

  • they don’t trust the insurers to pay up in the event of an incident/ event;
  • they feel the cost is prohibitive; or
  • they don’t need the protection!

Some of the personal risk protection that is held in superannuation accounts has led to members of some funds being insured with policies that are very restrictive in their definitions (and therefore fueling the concern about insurers not paying claims). They also give rise to situations where the insurance in place because of being employed by a particular employer, is lost when the employee changes employers.

(Whilst most of our clients have life insurance in place – and take advantage of our insurance annual review service, your family and friends may not yet have given the matter the same thoughtful consideration as you – and actually taken the step to secure insurance protection from personal financial risk! You might care to forward this article to them just as a reminder that they should deal with it, for the peace of mind and financial protection.)

Portfolio of personal risk protection products
Under the life insurance offerings, it is possible to construct a very effective portfolio of policies that ensure (or is that insure?) that financial plans designed to deliver certain goals and objectives are not impeded by events that impede continuous income/ wealth accretion. Consider the following –

  • Income Protection insurance – provides a regular income stream for a prescribed benefit period, to replace wages/ income lost during a period of illness or incapacity;
  • Trauma (Critical Illness) insurance – provides a lump sum benefit paid to the insured consequent to the diagnosis/ contraction of prescribed illnesses or physical disabilities;
  • Total and Permanent Disability insurance – provides a lump sum benefit paid on medical confirmation of continuing disability to perform certain functions described in the relevant policy; and usually not before six months after the event; and
  • Term Life insurance – provides a lump sum benefit payable to the nominated beneficiary/ policy owner upon the death of the insured.

The structure, ownership and mix of these policies in each client’s circumstance is important to ensure the appropriateness of the protection held.

Whether your life insurance cover is/ should be taken inside or outside of superannuation is a matter that should be resolved after examining the relevant circumstances. The important thing is to actually HAVE life insurance: prudent recommendation by your wealth management adviser will ensure that –

  • A proper needs analysis is conducted to ensure that the right amount of cover (not under-insuring; and more importantly, not over-insuring) is sought;
  • The right type(s) of policy are applied for; and
  • The ownership and beneficiary structures involved are correct in your circumstances…

.. and all of these should be reviewed regularly.

Continuum Financial Planners – here to advise and help

It is always timely to raise this matter (and accordingly we provide links to the following resources on our website):

Our website also carries some Case Studies about insurable events that might help to reinforce the value of the personal risk protection available from through life insurance: they include –

Continuum Financial Planners Pty Ltd experienced advisers look forward to an opportunity to review your personal risk insurance portfolio with you. Please call us to arrange a meeting (phone 07 34213456); or use the Contact Us facility on our website – and be assured of prompt and courteous attention.

First published in July 2013, this article has been occasionally updated, most recently in January 2021

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