There are various ways to protect yourself and your family from the financial problems that could arise if the main breadwinner becomes sick or injured. This month, we explore your options to ensure you’re not out of pocket.
The best way to minimise the financial ramifications of long-term illnesses or injuries is to put in place a strategy that protects your income.
Income protection insurance
As the name suggests, income protection insurance offers you payments in lieu of your earnings in the event you’re unable to work. However, there are typically various stipulations that you must consider.
- You are usually only covered for 75 per cent of your gross salary. Will this be enough to adequately provide for yourself and your family over the long term?
- There are usually restrictions on the maximum payout, so you must formulate a plan for when the seriousness of your injury or sickness extends beyond your insurance coverage.
Also known as critical illness cover, trauma insurance specifically provides financial support for people who have a severe medical condition. Policies will vary between insurers, but common illnesses included are heart attacks, cancer, strokes, organ failure and quadriplegia.
More extensive policies may include Parkinson’s disease, loss of limbs or sensory perceptions, extensive burns and a range of other ailments. In contrast to income protection insurance, trauma coverage results in a lump sum payment.
Total and permanent disability (TPD) insurance
An injury or sickness could cause lasting damage that prevents you from ever returning to the workplace in the same capacity as before the incident. This could have a devastating impact on your finances if you’re inadequately prepared.
TPD coverage may be included in your superannuation policy or can be purchased as additional insurance to help ease the monetary pressure in these circumstances. A successful TPD claim typically results in a lump sum payment, as well as the early release of the money saved in your super.
Should the worst happen, it’s crucial that your loved ones are sufficiently provided for. Life insurance means your family should be entitled to a lump sum payment when you pass away.
In addition to life insurance, you may also wish to nominate beneficiaries for your superannuation death benefits. This ensures your super is distributed to the appropriate people in the event of your death. If you do not confirm a binding death nomination, your super fund will decide how your retirement savings are paid out.
Taking the next steps
These are just some of the policies that can help you and your loved ones maintain an income stream if the primary money earner in the home becomes too injured or sick to work. With the right mix of income protection, trauma, TPD and life insurance, you should have coverage across a range of incidents that could prevent you from earning a living.