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The types of life insurance


Although people generally think of life insurance as just that – insurance which covers your life in the event of death – there are actually several types of life insurance policies:

1. Life Insurance – pays a lump sum on your death or the diagnosis of a terminal illness. So when the worst happens, your foresight will pay off the mortgage and other debts, provide for your children’s education, obtain child care and secure your family’s lifestyle. This will allow your family to focus on supporting each other, not worrying about paying the bills. As the years pass they will continue to be thankful you thought ahead.

2. Trauma Insurance (Critical Illness Insurance) – pays a lump sum on the diagnosis or occurrence of one of a list of specific illnesses such as heart attack, cancer or stroke. That payment gives you choice and flexibility at a time when you need it most. You will be able to reduce your working hours, spend time with your family, get treatment or rehabilitation and pay for a carer and any number of unexpected things.

3. Income Protection Insurance – provides a replacement income of up to 75% of your current income if you are unable to work due to illness or injury. Also known as ‘Income Replacement Insurance’, ‘Disability Income Insurance’ or ‘Salary Continuance Insurance’, it can cover you for short or long periods and offer various waiting periods to suit your needs. Depending on the policy, payments may continue right up to the age of 65 if the disability is ongoing or permanent.

You might find it interesting to calculate just how much you’ll earn from now until you reach 65 years.

4. Total and Permanent Disability Insurance – pays a lump sum if you become disabled and are unable to ever work again. You can use this lump sum to pay off debts, cover medical costs and invest so that you have an annual income to help maintain your lifestyle.

5. Business Expenses Insurance and Key Person Insurance– business expenses insurance covers the ongoing costs of your business if you are self employed and cannot work due to illness or injury. Key person insurance covers the losses incurred when a person essential to the success of your business is injured, becomes sick or dies.

The tax treatment of life insurance premiums and benefits:

If you take out Life Insurance, Total and Permanent Disability Insurance or Income Protection Insurance via your super fund, all premiums are paid from your pre tax earnings.

For insurance premiums paid outside of super the following tables applies:

Product Premiums Benefit
Income protection insurance Premiums are tax deductible Tax will apply to any benefit payments
Term Life Insurance Premiums are not tax deductible Tax does not apply to benefit payments
Total and Permanent Disability Insurance: Premiums are not tax deductible Tax does not apply to benefit payments
Trauma Insurance Premiums are not tax deductible Tax does not apply to benefit payments

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