The six things you need to ensure to be insured

Nine out of 10 Australians think life insurance is important but 20 per cent of the nation don’t know if they have the right amount of insurance. Here are the six things you need to ensure to make sure you and your family are protected, should the unforeseen occur.
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What would happen to you and your family if you fell ill, had an accident, couldn’t work or needed medical treatment? Life insurance, family protection, personal insurance, or whatever you prefer to call it, is designed to protect you and your loved ones when the unexpected happens, throughout all stages of your life.

Most Australians, 86 per cent, or nine out of 10 people, feel life insurance is important, while one in five of us don’t know if we have the right amount of protection. It can be intimidating to face your own mortality or consider the worst-case scenario, so let’s take the stress out of the process and look at your options.

 Superannuation and insurance

With 13.5 million Australians having a personal insurance policy in superannuation, many of us are likely to have cover without even realising it, according to Rice Warner research.

The benefit of holding insurance in superannuation is that your premiums are funded by your superannuation balance, saving you from making any out of pocket payments.

Default life insurance is typically automatically applied when you join a super fund. The most common types of policies held in super are:

  • life (death) cover, life insurance is often referred to as death cover by super funds,
  • TPD (total and permanent disability) cover, and
  • sometimes income protection (salary continuance) cover.
To check if you are not over insured and paying too much for your cover, or if under insured, first you need to determine how much cover you have:

 Check your super statement or call your provider
 Then contact either your adviser or use Sequoia’s online calculator to determine the correct amount of cover you need.

Below are the five different types of superannuation funds available in Australia, which all typically allow insurance policies to be held in them:

Self-Managed Super Funds (SMSFs) allow members to be the trustees of their own fund. The members of the fund run it for their own benefit and are responsible for complying with superannuation and taxation legislation and regulation. SMSFs allow individuals to have more control over their retirement savings. 1.1 million Australians choose this method, according to the Australian Government Productivity Commission 2018 draft report on Superannuation. SMSFs account for 5 per cent of funds in Australia.

Industry Funds are not-for-profit funds, typically designed for industry and include Retail Employees Superannuation Trust (REST Super) and Australian Super for example. Industry Funds account for about 8 per cent of funds in Australia.

Retails Funds are usually joined directly by the member or by a third party, such as financial planner, adviser or insurance agent. Typically, the Big 4 banks offer these. They are popular among people who are self-employed and account for 25 per cent of funds in Australia.

Public sector funds usually have a sponsoring business that is majority owned by the government. They include funds like First State Super. These account for about 4 per cent of funds in Australia.

Corporate Funds are sponsored by a single employer or group of related employers on behalf of their employees. For example, Telstra Superannuation Scheme. These account for 3 per cent of funds in Australia.

  Income protection

If you are not able to work due to sickness, accident or injury, income protection, also known as salary continuance, pays a monthly benefit of up to 75 per cent of your regular income. The cover protects you until you can return to work (for a maximum time period of two years, to age 60 or 70, or depending on your policy specifications).

Several factors influence the cost of the insurance premium, from the waiting period (typically 30 to 90 days) to your occupation, age, gender, and smoking status.

What you need to know about income protection:
  • Income protection is particularly suitable for those that are heavily reliant on their income, such as self-employed people, small business owners and those with families, giving them peace of mind and financial stability.
  • The premium is generally tax deductible if you hold your income protection policy outside of super.
  • If the policy is held in super, you don’t need to use your disposable income to pay for the premiums.
  • If your policy is held in superannuation, you will need to make a claim that you are unable to work plus you will also need to meet a condition of release, so the funds can be released from your superannuation.

 Life cover Insurance

Life insurance provides a lump sum amount (to your dependents) in the event of your death to help lessen the financial burden your family and loved ones may suffer because of your passing.

Life cover helps fund your:
  • funeral costs
  • outstanding debts and your mortgage(s)
  • as well as providing income to your partner or dependents so they can continue to live the life you planned.
When looking at your life insurance options, it is important to consider:
  • how much your dependents would receive from your shares, savings and superannuation when assessing how much cover you need.
  • It’s also important to note the difference between accidental death cover and life cover. Accidental death cover only pays out if you were to die from to an accident (not from an illness or disease).

It may also be worthwhile to check out how long it takes for different insurance providers to pay out.

 TPD Insurance

Total and permanent disability (TPD) insurance pays a lump sum if you become totally and permanently disabled. The payment can assist with rehabilitation, debt repayments, house modification and also fund your cost of living expenses.

Depending on your policy, TPD may be paid if you are unable to work in any occupation, or if you cannot work in your usual occupation. Insurance providers have different tests to determine ‘permanent disability’, so be sure to read the definitions. It’s vital to read the fine print of the policy.

 Trauma cover

Trauma cover, also known as critical illness cover, pays you an agreed lump sum of money in the event you are diagnosed with a specified medical condition or serious injury that impacts your life, such as cancer, heart attack or stroke. It can also be paid if you need to have a specified medical procedure that is covered in the policy. Trauma cover is not able to be held inside of super.

The lump sum payment is often used to cover immediate medical expenses, cover debt repayments while you recover, pay for ongoing therapy or rehabilitation cost or to fund house adjustments.

Health insurance

Health insurance covers you if you get sick, need medical treatment or need to fund hospital or ambulance fees, which are not covered by Medicare. This cover cannot be held in super.

About 45.6 per cent of Australians has a private health insurance policy which covers hospital treatment, while 54.6 per cent of Australians has extras cover, according to Australian Prudential Regulation Authority (APRA).

There are three general types of private health insurance:

Ambulance cover – repays you for the cost of being taken via ambulance to a hospital, or for an ambulance call out fee in the event of an emergency. You do not need to pay an excess when you make a claim for ambulance cover and the premium is generally very inexpensive in comparison to the cost of an ambulance. In some states and territories such as Tasmania and Queensland, the government will cover ambulance costs for residents, so there is no need to purchase ambulance cover in these states. To check if your state covers Ambulance cover, click here

Hospital cover – repays you for the costs of hospital admission, which is not covered by Medicare. This can include accommodation in a public hospital in a private room, theatre, and intensive care expenses. There are different types of cover available, from basic to ‘full cover’, and excess will need to be paid when you make a claim.

Extras cover – funds non-emergency medical treatments or services that are often given outside a hospital or as an outpatient. This can include optical, dental, physiotherapy or home nursing.

If you don’t have health insurance (hospital and or extras cover)

If you earn above a certain amount, you will be required to pay the Medicare levy surcharge at tax time. The surcharge is taxed on your income and is a tax on top of the Medicare levy. Whereas, the Medicare Levy is a tax all Australian residents pay for Australian healthcare (it is 2 per cent of your taxable income).

The Medicare levy surcharge tax is up to 1.5 per cent of your income, depending on how much you and your family earn:

  • If you earn under $90,000 and are single or are in a family and earn $180,000, and you will not need to pay the surcharge if you don’t have private health cover.
  • However, if you earn $21,980 or less, and your family income exceeds 180,000 you will not need to pay the surcharge if you don’t have private health cover.

If you are required to pay the surcharge, it is included with the Medicare Levy line items in your notice of assessment from the ATO. It will be called Medicare levy and surcharge.

Published: 7 May 2019
by Jessica Amir and Katrina Bullock

And remember, don’t forget to check how much insurance you have and if you are over or under insured.