Life is full of uncertainties. Insurance is a way to manage the financial risks associated with unexpected events like illness, injury, or death. A well-structured insurance plan can provide financial security for you and your loved ones when you need it most.

Risk management is a systematic approach to dealing with pure risk—situations that involve only the chance of loss or no loss. Insurance is the most common form of risk transfer, where you pay a premium to an insurer who agrees to bear the financial consequences of the risk.

Types of Personal Insurance

There are several types of personal insurance that can form part of a comprehensive risk management plan:

• Life Insurance: Provides a lump sum payment to your beneficiaries if you pass away. This can help them pay off debts, cover living expenses, and secure their financial future.

• Total and Permanent Disablement (TPD) Insurance: Provides a lump sum payment if you become totally and permanently disabled and are unable to work again.

• Trauma Insurance (or Critical Illness Cover): Pays a lump sum if you are diagnosed with a specific medical condition, such as cancer, a heart attack, or a stroke. This can help cover medical costs and provide financial support while you recover.

• Income Protection Insurance: Provides a regular income stream—typically between 70% to 85% of your pre-tax income—if you are unable to work due to illness or injury. This can help you cover your living expenses until you can return to work.

Insurance Inside and Outside of Superannuation

You can hold some types of insurance, such as life, TPD, and income protection, both inside and outside of your superannuation fund. There are advantages and disadvantages to both options:

• Inside Super: Premiums can be paid from your super balance, which can be a cash-flow-friendly option. The premiums are also generally tax-deductible to the super fund. However, the types of cover and features may be more limited, and accessing the benefits is subject to superannuation laws.

• Outside Super: You have a wider choice of policies and features, and the benefits are paid directly to you. However, the premiums are generally paid with after-tax dollars (except for income protection).

A financial planner can help you assess your insurance needs and recommend a combination of policies and ownership structures that provides the right level of protection for you and your family.

General Advice Warning:

The information provided in these articles are of a general nature only and do not take into account your individual objectives, financial situation, or needs. You should consider whether the information is appropriate for you, having regard to your personal circumstances. Before making any financial decisions, we recommend consulting a licensed financial adviser to assess your specific needs and circumstances.