Understanding Life Insurance Covers

Financial Freedom Ballarat

What are the four main types of insurance that you need to know about?

  1. Death Cover
  2. Total Permanent Disability cover
  3. Trauma cover
  4. Income Protection cover

All of the above insurances are under the Life Insurance banner because they protect your life.

A quick brief summary of each of those 4 different types of insurances:

Death cover

It pays out upon your death. You can also be paid at when you’re deemed terminally ill. You need 2 doctor’s certificate stating that you have at least 18 months to live. Some insurances vary but you can be paid out before you die so you can get your financing in order.

How is it paid? It is paid in lump sum to you.

How can you pay for it? It can either be paid from your bank account or from your superfund. 

Is the premium tax deductible? No, it’s not tax deductible when it’s paid from a bank account, but it is tax deductible to the superfund when it’s paid from your superfund.

When do you need this type of insurance? Two main reasons I generally cover off:

  1. When you’ve got dependents: children and wife
  2. When you’ve got debt; a home loan is generally the one that you want paid out if you’re not around.

Total Permanent Disability Cover

When does this pay out? You being unable to work or unlikely to ever return to work due to an injury or an illness.

When does it get paid out? It’s when you’re unlikely to ever return to work again due to injury or illness. You need to be off work for 3 months generally and you need to be deemed by the medical professional to not be able to return to your work. To give you an example, mental health is included in TPD. So picture someone unable to return to work ever again due to mental health reasons.

How is it paid? How do you pay for it? Is it tax deductible?

Similar to death cover, you can pay for it from your bank account or from your superfund. It’s not tax deductible if you pay for it from your bank account, but it’s tax deductible when you pay for it from your superfund.

When do you need TPD insurance? Similar reasons for the death cover:

  1. When you have a home loan or when you need to buy a house.
  2. Have enough income replacement if you’re unable to work.

Another thing to keep in mind is that there are 2 definitions with TPD insurance—Any Occupation and Own Occupation.

When it’s in your superfund, you can generally only structure it as an Any Occupation. This is the weaker definition one, which means that you’re unlikely to ever work again in any occupation as supposed to unlikely ever work again in your own occupation.

Think a surgeon for example, if he cuts off his finger he can’t be a surgeon anymore. He would be paid out if he had an Own Occupation definition; whereas if he had an Any Occupation definition, he wouldn’t be paid out with his claim because he could be an office worker or a painter.

Trauma Cover

This is also known as critical illness or serious illness. 95% of these claims are paid out in the event of stroke, heart attack, or cancer. There are about 50 illnesses in the list but 95% of the claims are for those main three.

How is it paid? It is paid as a lump sum, same as the first two covers.

How can you pay for it? The only choice is from your bank account. It cannot be paid from your super fund.

Is it tax deductible? No, it’s not. But when you get paid, that benefit is not taxable either.

When do you need it? If you wish to have a buffer in place if you suffer from a serious or medical condition or you wish to cover some living cost for a certain amount of time for you or for your spouse so you can focus on recovering from a serious illness.

Income Protection Cover

Protecting your income, a very important one.

When does someone need this? When you have an income and you’re relied upon, you’re going to want to protect it.

How is income protection paid to you? It’s paid in monthly instalments and it’s generally 75% of your wage.

What triggers a pay out to you? When you’ve been off work due to an injury or illness and you’ve met the waiting period that you have in place.  Generally, this is a 30-day waiting period or a 90-day waiting period. 

How can you pay for it? Two options: from your bank account or from your super fund.

Is it tax deductible? Yes, from both the options—bank account and superfund.

In summary, there are 4 main types of Life Insurance: Death cover, TPD, Trauma, and Income Protection. You can apply for one on their own or four at once and blend them together to create a nice protection plan which is your safety net.


P.S. Here are 2 ways I can help you with your life insurance:

  1. Grab your free 1-page personalised insurance report to learn how much insurance you need. Our Facebook Messenger BOT will chat to you; then send the report direct to you: bit.ly/ins-2021
  2. Book a free 15 chat to discuss your personal insurance plan. Happy to have a chat: bit.ly/15-chat


General Advice Warning: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.

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