Key points
- Personal insurance can help protect your income, lifestyle, family, and financial plans if illness, injury, disability, or death changes your circumstances.
- The four core forms of cover are life insurance, total and permanent disability (TPD), trauma or critical illness insurance, and income protection.
- For business owners, insurance can also be an important part of business continuity, debt protection, succession, and ownership planning.
- The right strategy is not simply about having more insurance. It is about having the right type and amount of cover, with an appropriate structure and policy features for your circumstances.
Most of us would not think twice about insuring our home or car. Yet one of our most valuable assets, our ability to earn an income and build wealth over time, can sometimes receive much less attention.
It is worth considering what would happen if illness or injury meant you could not work for six months, several years or potentially ever again.
Would your family be able to maintain its lifestyle? Could mortgage and other loan repayments continue? Would your retirement plans remain on track? And, if you own a business, what effect would your absence have on the business, your fellow owners, employees, and family?
Personal insurance is designed to provide a financial safety net when circumstances change unexpectedly.
What are the main types of personal insurance?
There are four main types of personal insurance that should be considered as part of a broader protection strategy.
Life insurance
Life insurance provides a lump-sum benefit in the event of death or, subject to the policy terms, terminal illness.
The proceeds can help provide financial security for the people who depend on you and may be used to reduce debt, provide for ongoing living costs, support children’s education, and help fund other longer-term family objectives.
Total and permanent disability insurance
Total and permanent disability (TPD) insurance provides a lump-sum benefit if you meet the policy’s definition of total and permanent disability.
The definition is important and can vary between policies. Appropriate cover can provide capital to reduce debt, fund medical or rehabilitation expenses, modify a home, provide for future living expenses, and help address the financial impact of being unable to return to work.
Trauma or critical illness insurance
Trauma insurance provides a lump-sum payment if you suffer one of the specified medical conditions covered by your policy and satisfy its definition.
Conditions covered commonly include serious illnesses such as cancer, heart attack, and stroke, although definitions and benefits differ between insurers and policies.
Unlike income protection, the benefit is generally not directly linked to the amount of income you have lost. This can provide additional financial flexibility at a time when your circumstances and expenses may change significantly.
Income protection
Income protection is designed to replace part of your income if illness or injury prevents you from working.
Depending on the policy, benefits are generally subject to a waiting period and are payable for a defined benefit period.
The policy definitions, benefit structure, waiting period, benefit period and other terms can make a significant difference to the protection provided. This is why these features should be considered alongside the premium when selecting appropriate cover.
Isn’t insurance already included in my super?
You may already have life, TPD or income protection insurance through your superannuation fund.
For some people, this can form an appropriate and cost-effective part of their overall protection strategy. However, default cover may not necessarily reflect your income, debts, family circumstances, or financial objectives.
Rather than assuming your existing cover is sufficient, it can be worthwhile understanding:
- how much cover you actually have
- what events and circumstances are covered
- the policy definitions that apply
- when the cover may cease or change
- who may ultimately receive a benefit
- whether holding cover inside or outside superannuation is appropriate for your circumstances.
The objective should not be to duplicate insurance unnecessarily, but to understand your existing cover and determine how it fits into your overall financial strategy.
Why does personal insurance matter?
Insurance is ultimately about protecting choices.
If serious illness, injury, or death occurs, having appropriate insurance can reduce the need to make major financial decisions at an already difficult time.
For example, insurance proceeds may mean a family does not need to sell its home or investments simply to meet immediate financial commitments. Income protection may provide valuable cash flow while someone is unable to work, allowing them to focus on their health and recovery.
Appropriate insurance can help with mortgage or rent payments, loans, living expenses and out-of-pocket medical costs. Importantly, it can also provide choices.
For clients who have spent many years building wealth, insurance can also help protect that accumulated wealth by reducing the need to draw down investments or retirement savings prematurely.
Personal insurance for business owners
For business owners, the discussion often needs to go further.
Personal and business finances can be closely connected. Business loans may be supported by personal guarantees, family assets may be exposed to business liabilities, and the success of the business may be heavily dependent on one or two owners or key people.
An appropriate business insurance strategy may therefore consider:
- Key person protection: helping the business manage the financial impact of losing someone critical to revenue, relationships, or operations.
- Debt and loan protection: providing funds to help address business debt following the death or disability of an owner or key person.
- Asset protection: helping reduce the financial exposure associated with business borrowings and personal guarantees.
- Buy/sell or ownership protection: providing funding to help facilitate ownership changes following the death or disability of a business owner.
- Business expenses insurance: helping meet eligible ongoing business expenses if an insured business owner is unable to work.
These issues can be particularly important where the value of the business represents a significant component of an owner’s personal wealth and future retirement plans.
How much insurance do you need?
There is no single amount of insurance that is appropriate for everyone.
The level of cover should generally reflect what you would want to happen financially if you died, became permanently disabled, experienced a serious medical condition or were unable to work.
That assessment may include:
- home and investment debt
- business debt and personal guarantees
- ongoing family living expenses
- children’s education costs
- replacement income
- medical and rehabilitation costs
- existing savings and investments
- superannuation and existing insurance
- business ownership interests
- longer-term retirement and estate planning objectives.
The aim is not necessarily to insure against every possible dollar of financial loss. It is to identify the financial risks you do not want yourself, your family, or your business to have to carry.
Why seek advice rather than simply compare premiums?
Insurance can be purchased in a number of ways, and price is naturally an important consideration. However, insurance products are not identical.
Policy definitions, exclusions, waiting periods, benefit periods, occupation classifications and other terms and conditions can differ between insurers.
At Pitcher Partners Wealth Protection, we look beyond the premium itself.
We consider how your insurance strategy fits with your:
- personal and family circumstances
- income and cash flow
- debts and financial commitments
- existing insurance and superannuation
- business interests and ownership arrangements
- estate planning
- wealth creation and retirement objectives.
For business owners, the process can also involve considering business debt, key people, ownership agreements, and succession planning.
This broader approach allows insurance to be considered as part of your overall financial position rather than as a standalone product.
Insurance should change as your life changes
The insurance strategy that was appropriate when you were 35 may look very different at 45, 55 or as you approach retirement.
Debt may reduce. Your income may increase. Children may become financially independent. Business ownership may change. Your investments and superannuation may grow.
That’s why insurance should not simply be arranged and forgotten.
Regular reviews can help ensure your cover continues to reflect your circumstances while also identifying opportunities to adjust or restructure cover that is no longer required.
The objective is to maintain an appropriate level of protection without continuing to pay for cover that no longer serves a clear purpose.
The right protection provides more than a payout
Ultimately, personal insurance isn’t about predicting what might go wrong.
It is about making sure that, if something does happen, you, your family and your business have choices.
A well-structured insurance strategy can provide financial breathing space when it is most needed, while helping protect the wealth, lifestyle, and business interests you have worked hard to build.
How Pitcher Partners can help
Pitcher Partners Wealth Protection can help you review your existing arrangements and identify whether your current cover remains appropriate for your circumstances.
We can consider your personal insurance alongside your broader wealth position and, where relevant, your business interests, helping you determine the types and levels of cover that are appropriate and how they should be structured.
Whether your priority is protecting your family’s lifestyle, your income, the wealth you have accumulated or the business you have built, the starting point is understanding the financial risks you face and deciding which of those risks you are comfortable retaining and which you would prefer to protect.
If you would like to review your existing cover or discuss your personal or business insurance needs, speak with the Pitcher Partners Wealth Protection team.
This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.
