As you approach retirement cover may be more difficult to obtain and more costly. 

Some insurance products such as trauma cover, income protection and total and permanent disability might be more difficult to obtain or not possible.

You can call our team and speak to an adviser to understand how products might differ if you like.

Using our quoting tool might not display options for you unless you select life insurance only. 

Some insurers will offer "living expenses" or "non-working income protection" this cover can pay a benefit if you are unable to perform some of the activities of daily living such as bathing yourself or moving on your own. This type of cover can appear low in cost but that is because the definition is quite difficult to claim on. You should understand these restrictions before buying this type of policy. 

We're sorry to hear you are unwell. 

Obtaining life insurance while recieving treatment will be difficult. You may be able to obtain "accident only" types of cover but you should be aware that these policies have significant restrictions. 

You should speak to an adviser to understand the options avalible and to see if we can assist. 

Taking your life into your hands when you step on to the worksite? 

Despite excellent health and safety legislation Australia wide, the fact of the matter is that some jobs are more dangerous than others and this can make obtaining insurance more difficult. 

Another major factor is how fit you need to be to perform your duties. For example, an office worker with a broken finger or even a broken arm could still come to work and take phone calls, an electrition working on a mining site on the otherhand would not be allowed anywhere near work until they had medical clearance. 

These circumstances and many others are calculated risks and insurer will take when offering insurance. Depending on your occupation some providers may not offer cover or may offer cover with less protection than others. 

If when using the quoting tool you only see one or two options (or even no options) you should speak to an adviser to make sure you are getting the best outcome. 

Working part time? 

Income protection cover may ask additional questions or come with restrictions.

Married or in a relationship? Consider the impact of their sickness on your financial well-being.

Often the first thought when it comes to buying insurance is to have life insurance and income protection for the main income earner. 

That is a good place to start but the reality is that the illness or death of a partner, especially one that isn't working with young children at home can devastate your finances. 

Often a successful spouse is only able to maintain that success because they have a stable and healthy partner behind them - if you think that means that single parents are hero's you're absolutely right!

Consider making sure your entire family is protected

While it's exceptionally rare for children to be diagnosed with a critical illness such as cancer, it does happen. Such an event will place extreme financial and emotional stress on the family. Sadly, many relationships don't survive as a result. Many insurers will include some form of children cover in the policy if a parent has trauma cover. 

You should read the product disclosure statement for any product you select to see if this cover is included or if it is an option. Our staff can help you select this option when finalising a quote if required and thankfully, because this event is unlikely the cover is also quite cheap, often around $1.50 per month for $10,000 of cover. 

Playing competitive sports or other activities? 

When insurers consider risk they also need to know what you do in your spare time. Team sports are great physical exercise but they also carry the chance of injury. Insurers will ask you about this when you apply for cover and may do the following: 

1) Exclude the activity - they may cover you but not if you are injured in that activity

2) Cover you but with a delay - they may ask you to wait longer before you can claim if that claim is from your past-time. For example, if your waiting period is 30 days they may change it to 90 days for sports injuries but otherwise leave your cover the same. 

3) Refuse cover at all - some past times are quite dangerous and the insurer might prefer to simply decline the cover.

4) Accept the cover without any issues - many past-times are perfectly fine so long as they insurer knows about it when you apply. 

Self employed? Tread carefully, strongly consider getting advice and remember that an accountant is not a financial adviser unless they are licensed. 

As a self employed person your financial situation relies on your ability to work and save, there is not likely to be any workers compensation payment, sick leave or other entitlements available to you. 

Being self employed may also mean that simple income protection is not enough. 

Here are the most common mistakes people make when buying insurance as a self employed person. These are even mistakes that advisers make, thankfully our team know these traps very well and can guide you through if you need professional assistance. 

1) Not covering business expenses - if you are the main income earner (either in a small business, sole trade or contractor) you will likely have fixed costs such as rent, car payments, service subscriptions and other expenses. Income protection will only insure your income, as in the money you earn AFTER these expenses are paid. If for example your total business income is $200,000 and from that you pay $50,000 in variable costs (supplies and product) and another $50,000 in fixed costs (rent and lease costs) then your personal income is $100,000. Income protection will typically cover up to 75% or $75,000 in this example. 

If you claim, those fixed costs won't stop and that could mean that even if your income protection pays out you will only have $25,000 to live on!

Business expenses cover will pay those fixed expenses for up to 12 months allowing you to restructure your affairs. You can select this as a policy to quote on and some providers include it in their Income Protection cover as an option. 

None of that made sense but could apply to you? Speak to a qualified adviser you won't get many chances to get this right! 

2) Under or over disclosing income - insurers will usually take your word for it when you state your income. You can elect to send them the financial information to confirm your benefit but in any case they will ask for financials at the the time of claim. If you only pay yourself a minimal wage and run the majority of your expenses through the company it may not be possible to protect your income properly. If you don't disclose and pay take on your income correctly you will also find yourself unprotected at claim time. If you state your income at a certain figure make sure you have the financial evidence to back it up. 

Insurers will "add back" expenses such as cars and other costs that apply to both business and personal expenses and they may also include income that you split to your partner. It's important to document what is happening with your money - if your spouse is an employee are they being paid purely to manage tax or because they do work? Either is fine but the outcome is different. A spouse doing the book works might be a business expense (see point 1) or income producing and in need of their own protection. Often it's a combination of the above, an adviser, working with your accountant can help you calculate this correctly. 

3) Not protecting debt - a serious illness, injury or death could result in your loans being called in, this is especially true of cash flow based business loans or overdrafts. You can use life insurance, disability insurance and trauma cover to protect these events and pay out business and personal debt if you become ill or die. 

4) Not having a business will -  if you have a business partner or multiple shareholders you need to think about how that structure will be unwound if a partner dies, becomes disabled or ill. You should obtain legal advice as well as appropriate insurance to ensure the business can survive a major shareholder or key person having to leave suddenly. 

Sound complicated? It kind of is! 

That might have been a bit to digest and sometimes its easy to "just do this later" because of the complexity involved. The reality is that you never know when you will become ill or suffer an injury so take the time to work through these issues and make sure you select the right cover or just let our team help you get it right.

An accountant is not a financial adviser unless they are licensed to operate as one, they can help you manage your books and provide tax advice but they can't help you select the right policy or determine the right amount of cover.  

Be careful when you are replacing a policy

You may be getting quotes because your existing policy has gone up in price or because it has not been reviewed in some time. 

Before you do that there are few things you should know: 

1. A new policy might have restrictions or exclusions that your old one did not. If your health has changed since you took out your original policy it could be smarter for you to keep your old one. If you are not sure call our team and ask for advice. 
2. Recent changes to income protection mean that new polices are only "indemnity" older policies had the option of "agreed value". If you had an agreed value policy you read the product disclosure statement and fully understand the benefit you might lose by replacing your cover. 
3. No matter what do not cancel your policy until you are sure that the new one has been accepted. 

Is there a debt associated with you home or investment property? Consider ensuring it is paid out if you become ill, disabled or die. 

Income protection will make sure you continue to receive up to 75% of your salary if you can't work but if the illness is more serious this could become a long term issue. 

Other policies - life insurance, disability and trauma cover pay a lump sum and this lump sum is determined by you. 

If you have a home loan you should give serious thought to having it paid off if you die, become disabled or critically ill. 

If you have an investment property with a loan attached you may want to do the same. This may be optional for disability and critical illness as the property might pay for itself but if you die your family may be forced to sell the property EVEN if it pays for itself with rent. 

This is because bank loans are assigned to a person and if that person dies the loan must be repaid. It can only be assigned to another person with a refinance and if you have a spouse and their income isn't the same they might not be able to refinance at all and will be forced to sell. 

Life Insurance

Life insurance can mean "all types of insurance that cover's your life" but in most circumstances it just means what happens if you die. We could call it "Death Insurance" but that sounds kind of scary. 

There is no escaping it though - this cover is to protect your family if you die or if you become terminally ill. 

You might need this cover if: 

You have dependents (spouse or children) who rely on your income and debts over property that might result in them being sold if you pass away. 

Total and Permanent Disability Insurance

This cover is designed to make a single large payment if you can never work again at all. Ie you are "totally" and "permanently" disabled. There are different definitions of this cover (sometimes called "TPD insurance") so you need to understand the definition you are being offered. You would think "total and permanent disability" means the same thing to everyone but in fact there are several different definitions and each can make a big difference if you try and claim on the policy. 

1. Own occupation TPD - this is the highest quality policy type it means that the insurer considers your ability to work in the occupation you told them you were in when you took out the policy. If you can't do that job ever again they would consider you permanently disabled and should pay a claim. This doesn't stop you from being rehabilitated into another role in the future. An example would be a surgeon that hurts his hands, he may never hold a scalpel but that doesn't stop him working as a wizard (spot the movie reference!) 
2. Any occupation (unlikely) - this is the next best and usually appropriate for most people. The definition is typically that you are unlikely to work in any occupation that you are reasonably qualified by education, training or experience. 
3. Any occupation (unable) - similar to the above but that one word can make a difference. A doctor may say that your injuries may make work unlikely but "unable" is more final and often considered stricter. 
4. Any occupation (retraining clause) - this definition has appeared in many default superannuation policies and it's a lot worse then the one above. In essence the insurer can consider if you could be retrained into a new occupation and if that is the case does not need to pay the claim. To the best of our knowledge none of the providers you can select from have this definition. 
5. Activities of daily living - you are so disabled that you are unable to perform the basic functions of daily living (feeding yourself, taking a bath etc). This definitions is VERY hard to claim on, you must be significantly impaired and it is usually only offered to those in very dangerous occupations. 

You might need this cover if:

You have debts and insufficient savings to stop work straight away - that's most of us. 

Trauma or Critical Illness Insurance 

This policy is designed to make a single large payment to you if you are diagnosed with or reach a level of illness based on a list of serious conditions or definitions. 

The vast majority (more than 90%) of all claims are heart attack, cancer and stroke. 

Many other serious conditions are covered including major burns, coma, paralysis, multiple sclerosis and many other conditions. Of all the policy types this is the most claimed upon and the one that the least amount of people have. 

When our team provide financial advice we almost always recommend someone hold some of this cover. The conditions it covers are very common and very scary. 

You might need this cover if: 

You have some debt and do not have a spare $100,000+ to spend on some of the treatment options available for serious conditions. 

Income Protection

Income protection protects your income and pays a monthly benefit if you can not work due to sickness or accident. It has 3 major parts to consider:

1) The benefit amount - how much you can be paid. This will usually be limited to 75% of your income prior to disability. 

2) The waiting period - how long you must use your own savings before the policy starts paying. This can selected by you and it is usually 30, 90, 180 days or 1 or 2 years. Of course a policy that only pays if you have been unable to work for more than 2 years may not cost very much but the overwealming number of claims are from people who are injured for more than 30 days but less than 90. 

3) The benefit period - how long you will be paid for. You can chose a policy that only pays for 2 years, or 5 years or until you age 55,65 or 70. The longer the benefit period the higher the cost of the policy but ultimately that is because the insurer is taking on the risk of paying you an income stream for a long time if you can not work. 

You may need this cover if: 

You rely on your income to live - that's just about everyone! 

Business Expenses Cover

Business expenses cover pays a monthly benefit for 12 months to your business. This amount is designed to cover costs such as non-income producing staff, lease costs and fixed expenses. 

You might need this cover if: 

You have a smaller business that is very dependant on your ability to produce income. 

How much Life Insurance? 

The short version
​
Salary divided by 5% + current debt = Life insurance cover

or

salary x years it is required for + current debt = Life insurance cover

The long version

Basically, we want to replace the person who has died with a pile of money that can go some way to replacing their financial contribution to the family. Typically, this means clearing debt and replacing the wage a person earns.

You can replace a person’s income with a simple calculation: annual salary divided by 5%. This will create a number that will, assuming the amount earns 5% interest pay an income for eternity.

As an example: $50,000 divided by 5% = $1,000,000. $1million invested in an account earning 5% would pay $50,000 per year forever.

But a person doesn’t work forever so why do we present this as a basic calculation?

Well, interest rates are not currently 5% so we would need to take investment risk to achieve that return and that income won’t be indexed with inflation. These two factors mean that it is highly likely that the amount won’t actually last forever, but it does provide us with a meaningful way to determine a reasonable amount of cover that would suit most people.

So why pay out debt when we have an income stream for life? Most debt is tied to the person and the bank will eventually call in a loan when the person who has borrowed the money passes away. In most circumstances it’s better to ensure there is money to pay out the loans straight away AND provide that income stream. This method works best for young people with young families but can result into much insurance if you have significant assets or are older and closer to retirement.

Another method is to simply multiply your salary by the years that it would be needed. For example, a family where the youngest child is 10 might expect to need both wages for another 10 years. In this case simply multiply the salary by 10. This amount won’t account for inflation but considering we have also cleared all debt the amount should put you in a reasonable position.

What about non-working spouses?

In this case you might multiply the working spouse’s salary to provide enough time for them to take time off work to look after the kids or reduce working hours.

How much Total and Permanent Disability Insurance? 

The short version

If you have income protection: salary x 2 + $200,000 + current debt

If you don’t have income protection: salary divided by 5% + $200,000 + current debt

​The long version

Total and permanent disability means that you or your partner is so injured or ill that 2 doctors agree that they are not likely or unable to ever work again.

This can sometimes be a fate worse than death – none of the financial contribution, all of the costs. Income protection can make a very big difference here and if that cover is part of your plan the amount of disability cover reduces significantly.

Like life insurance we typically want to remove the stress of debt and provide some amount of income replacement. Separate from life insurance though we typically have ongoing medical and rehabilitation costs. As a general rule we estimate that the cost to restructure a person’s life after permanent disability is $200,000. This amount was determined by estimating the cost to refurnish a home with new kitchens and wider doors or indeed to move to a new house. Furthermore, this lump sum allows the disabled to engage in personalized rehabilitation for a period of 3-5 years assuming a $20,000 annual cost and a $50,000 budget for equipment and higher cost of living. Australia does have a high quality and (comparatively) well-funded disability support programs. These estimates are designed to augment but not replace government services. If you do not have or cannot get income protection, then you should consider adding a multiple of salary calculation to the cover as well since that wage will be lost if you can’t work.

How much Trauma or Critical Illness?

The short version

If you have income protection: Current debt + $100,000

If you don’t have income protection: Current debt + $100,000 + 2 years salary

The long version

Trauma cover is designed to provide you with choices. Typically claims for trauma include heart attack, cancer and stroke. In fact, these events account for 92% of all claims with some insurers.

In this case you are neither dead, disabled or necessarily unable to work. Trauma has nothing to do with your ability to earn an income and everything to do with the specific illness you have been diagnosed with. The amount paid is determined by you and it is paid to you for anything you wish. You do not need to use it for your home loan or medical expenses.

This cover is difficult to understand and to calculate because everyone’s experience with trauma is unique. Cancer often feels like a battle to be fought and won while a heart attack is more akin to having the rug pulled out from under you. Suddenly that lump of muscle in your chest that you never thought about becomes your single tenuous grasp on your connection to life. None of this is fun.

Determining the right amount of trauma cover is more about maximizing choice – you could go back to work after one of these conditions, or you could have enough cover to take 2 years off and refocus your life. You could keep paying the mortgage or you could make it disappear forever. You MAY need to pay for medical costs, or you might be presented with treatment choices overseas that you can pay for. All of these things will cost money and trauma allows for these choices.

Therefore, a typical “best outcome” would be 2x salary, the total amount of debt and $100,000 towards medical expenses. Why $100,000? Non-PBS medical treatments for cancer cost between $40,000 and up to $80,000 for a 12-month course according to our investigations.

How much Income Protection?

The short version

Total annual salary (including bonuses, car allowances and super) times 75% divided by 12

Waiting period – as short as you can afford – typically 30 days

Benefit period – as long as you can get – typically to age 65

The long version

Income protection is a fundamental cover – as you may have noticed from this guide all calculations come back to multiples of income in some way shape or form.

Income protection calculation is usually simple – 75% of your salary including super and other payments paid for as long as possible with the payment commencing after the shortest period possible.

The most common benefit period is until age 65 however some occupations can pay until age 70. The most common waiting period is 30 days – you can make this shorter or longer and the waiting period should be determined based on how long you can last before that income is required.

How much Business Expenses Cover? 

The short version

Look at an insurance PDS under “allowable business expenses” and mark these off on your profit and loss. Add these expenses up, divide the number by 12 and select the lowest waiting period you can afford.

The long version

Business overheads cover is designed for small business owners who would have ongoing costs if they could not work. An example would be an electrician with a car lease – if they stop work the bank will still need that lease paid. The best way to determine the right amount of cover is to refer to the product disclosure statement of an insurance policy and read the “allowable expenses” definition. It will tell you the items on your profit and loss that can be covered.

It’s important to note 2 things with respect to business expenses and income protection for self-employed persons:

Determining the right amount of cover can be tricky (even financial advisers’ stuff this up)
Business expenses is designed for business that would make a loss if the insured person becomes ill. It’s not designed for businesses with multiple staff contributing to the company profit.

All done! 

Depending on your answers you may now be even more confused than when you started! That's ok, this is actually a little bit complex which is why it's an advised product and we haven't even covered off different structures of owing a policy! 

The key thing to remember is that something is better than nothing when it comes to insurance.

If however you do choose to select some options for yourself, that's fine too! You can always ask us to review your choices in the future if you like. 

This service may not be for you. Please call 1300 160 803 if you wish to speak to an adviser. 

Thanks

The Enva Team.