Frequently Asked Questions About Personal Insurance

What is the best type of cover for me?

There are many different options available with each persons needs and circumstances being different to the other.  For this reason it is highly recommended that you receive appropriate advice and guidance by a qualified adviser. Even though there may be some crossovers, each particular cover is designed to serve a particular purpose.  An adviser will also help you determine the amount of cover needed to ensure that you are adequately protected.

Will I need a medical or blood test when applying for insurance?

When applying for comprehensive cover, a medical or blood test may or may not be required.  The life insurers will decide depending on any medical disclosures made on your application form.  In most cases medicals are not required as information can be sought directly from your Doctor if needed.  A medical will only apply on occasions where the insurers don’t have enough information to go by.  In such cases the life insurer will organise and pay for the medical so there is no additional cost to you.

Why are premium rates different for each person?

There are many factors that contribute towards premium cost for the cover you are applying for.  Life insurers determine the rates depending on your personal risk and likelihood of making a claim.  Factors that are taken into consideration include age, gender, occupation, smoking status and your overall health.  This allows for lower premium rates for low risk applicants and higher premium rates for high risk applicants.

Can I own more than one policy?

You can own a number of different policies provided that you are not over insured.  Taking out several different policies however may not be the best way to go.  It may be best to take out or combine your cover under the one policy with the same insurer if appropriate.

This will reduce your cost as only one policy fee will apply as opposed to paying three or four sets of fees for the same level of cover.  Life insurers also give premium discounts on both multiple covers and higher sums insured so apart from being convenient, you are also saving money on your cover.

Once I take out the cover am I locked in for the long term?

The short answer in no.  Even though it is in your best interest to keep your cover in place for as long as possible, you can cancel your cover at any time without incurring a cost.  Always receive advice before cancelling your cover as you may be ineligible to take out cover again at a later date.

If you cancel your cover and decide later that you need it again, you will need to be underwritten again by the insurer so any changes regarding your health may impact your ability to qualify for new insurance.  It may be best to reduce your level of cover rather than cancel your policy to be on the safe side if that’s an option.

One of the benefits of comprehensive cover is that once the cover has been issued the insurer cannot cancel the cover if your health starts to deteriorate or if you are continually claiming on your policy.

Am I covered overseas?

If you take out your cover through a reputable life insurer you are covered for any injury, illness or death sustained while outside of Australia.

I already have cover through my super fund?

This is one of the main reasons why we have a huge underinsurance problem in Australia.  If you are an employee chances are you are a member of an industry super fund and therefore automatically receive life and possibly TPD cover through your fund.  The problem is that very few people know how much cover they have and in almost every scenario the amount of cover held is inadequate.

It is therefore extremely important to enquire about the type and level of cover offered through your fund or top up your cover through a personally owned policy.  Having some cover through your work super fund is a good start, however your cover is tied in with your super fund so benefits may be lost if you change funds, change employers or have insufficient funds in your account. Another point to note is that insurance definitions are usually inferior within industry super funds when compared to retail cover.

Can I own and fund my cover through my self managed super fund (SMSF)?

SMSF’s are gaining in popularity so chances are you have already set one up yourself or may do so at some stage in the future.  The good news is that your SMSF can own and fund your personal cover providing both cash flow benefits and tax advantages.  It is very important however to receive advice in this area as to the types of cover allowed and the rules relating to super fund ownership, as there are several factors to consider.

Will I have to pay tax on any benefits received?

Generally speaking, if a policy is personally owned for life, trauma or TPD cover all benefits will be received tax free to either the life insured or the nominated beneficiary or beneficiaries.  Tax may be payable however if your cover is held within your super fund as the super rules are different, so once again it is best to seek advice.  Income protection benefits however are treated as ordinary income so tax is payable at your marginal tax rate.

What are my options in regards to premium payments?

When applying for personal insurance you need to indicate your preferred payment method.  The two main options include a direct debit from either a nominated bank account or credit card. If your cover is held within the superannuation environment, premiums are paid from your super account balance.  You can also elect to pay your premiums monthly, quarterly, half yearly or yearly with a discount offered on yearly payments.

Will cover be offered to me if I have any health or weight issues?

This depends on the avenue you choose when applying for cover.  If you are applying online or through a direct channel, chances are you may be declined for cover or excluded for all pre-existing conditions.  Your best option is to approach a risk adviser who has access to several insurers and products.

All cover applied for through an adviser is medically underwritten at application time so your personal health is taken into consideration and assessed accordingly.  Depending on the severity of the condition you may find that full cover is still offered or cover is offered with altered terms or at a higher cost.

What is the difference between ‘stepped’ and ‘level’ premiums?

When applying for cover you have two main choices in relation to your premium structure.  Stepped premiums are initially cheaper however go up each year as the premiums are recalculated on your current age.  Level premiums are higher initially, however only increase with CPI so the increases are minimal from year to year.

Your own personal circumstances will determine which premium structure is right for you.  Generally speaking, if your cover will be kept in place over the long term, level premiums would be the best way to go to ensure premiums are still affordable towards the end of the policy term.

When is the best time to take out cover?

The earlier you take out personal insurance the better!  Why?  First of all, you never know when illness, injury or premature death will occur so the cover obviously needs to be in place prior to the event occurring.  Unfortunately most people consider taking out cover after an event, which is like insuring your home after it has burnt down!

The majority of the people I speak to also don’t realise that it’s the life insurers who determine who they will or will not offer cover to based on their underwriting assessment.  This basically comes down to your health, so the healthier you are the more likely you will be accepted for cover.  For this reason I always recommend that you lock in your cover now while you are still eligible as your circumstances can change overnight.

One of the main factors used to determine premium cost is age.  The younger you are the cheaper the premiums therefore the earlier you lock in your cover the better it will be for you.  It’s also important to take out your cover while you are still healthy as there will be no exclusions or modifications to your cover.  This means that there will be no restrictions come claim time so you will qualify for benefits each and every time.

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