Life, TPD and trauma cover

If you died or became too sick to ever work again, how would the people who rely on you manage? Life, TPD and trauma insurance are designed to help answer that question.

Life cover

Life cover (also called death cover) pays a lump sum to the people you choose, called beneficiaries, if you die. Many policies also pay early if you’re diagnosed with a terminal illness.

Your family could use the money to:

• pay off the mortgage and other debts
• cover funeral costs
• replace your income while they adjust
• pay for childcare and school costs

Life cover matters most when other people depend on your income or care. If no one relies on you financially, you may need little or none.

Total and permanent disability (TPD) cover

TPD cover pays a lump sum if illness or injury means you’re unlikely to ever work again.

The definition of “disabled” makes a big difference:

• Own occupation: you can’t work in your usual job again.
• Any occupation: you can’t work in any job that suits your education, training or experience.

“Any occupation” is harder to claim on, but usually cheaper. TPD cover inside super is generally “any occupation”.

Trauma (critical illness) cover

Trauma cover pays a lump sum if you’re diagnosed with a specific serious condition listed in the policy. Common examples include some cancers, heart attack and stroke.

You don’t need to be unable to work to claim. The money can help pay for treatment, time off or changes to your home.

Trauma cover can’t be held inside super. You buy it directly or through an adviser.

How much cover might you need?

There’s no perfect number, but a simple approach is to add up what your family would need, then take away what they’d already have.

Add up:
– debts to repay (mortgage, car loan, credit cards)
– funeral and immediate costs
– future costs, like kids’ education
– income your family would need for a number of years

Take away:
– savings and investments
– existing cover, including in your super

A life insurance calculator can help you run your own numbers.

Tax and costs

Premiums for life, TPD and trauma cover held outside super generally aren’t tax deductible. Premiums for cover inside super come out of your super balance, which reduces your retirement savings.

If you buy through an adviser, they may be paid a commission from the insurer. They need your consent first, and commission can affect advice, so ask how they’re paid.

Things to check before you buy

• Exclusions: what the policy won’t pay for, like some pre-existing conditions.
• Definitions: especially for TPD and each trauma condition.
• Premium type: stepped (rising each year) or level (higher at first, rising more slowly).
• Beneficiaries: who gets the money. For cover in super, a valid nomination helps make sure it goes to the right people.

Where to get free help

• Insurance Law Service (Financial Rights Legal Centre): free legal advice on insurance problems, 1300 663 464.
• AFCA: free, independent complaints service, 1800 931 678.
• Moneysmart: https://moneysmart.gov.au