Do you understand your Life cover?
The majority of people that have Life insurance with Total and Permanent Disability (TPD) and Trauma covers have the covers linked, but don’t really understand how it works, and how it might affect the way the policies pay out in the event of a claim.
When setting up Life Insurance you have the option of linking TPD and Trauma covers to your Life cover which is the simplest and most common way of arranging insurance, also making it easy to manage.
Most people think that they will get a full payment of each of their separate benefit amounts for their Life, TPD and Trauma, but this is not the case. Your linked life insurance policies may leave you and your family short in your time of need.
If you select a linked benefit, a claim on your TPD or Trauma insurance is going to reduce the amount of other benefits you have in place. Basically the maximum benefit that the insurer will pay is the value of the Life cover.
The alternative to linking your benefits is to arrange them as standalone covers. This allows for each of the benefits to be paid separately in the event of a claim. You can however still have your cover together under one policy.
Let’s say, you have a linked Life, TPD and Trauma policy with the below benefits:
• $1,000,000 Life cover
• linked TPD cover of $750,000
• linked Trauma cover of $100,000
| Benefits Paid | Benefits Remaining | |
|---|---|---|
| Example 1 | Trauma claim paid of $100,000 | – Life reduced to $900,000 – TPD reduced to $650,000 |
| Example 2 | TPD claim paid of $750,000 | – Life reduced to $250,000 – Trauma reduced to $0 |
| Example 3 | Life claim (death) paid of $1,000,000 | All policies cease due to death of the Life Insured |
With a linked cover policy if you want to make sure you still have the same level of life cover, and not have it reduce after a TPD and / or Trauma claim, you can select for an additional cost, to add an optional life buy back. This allows you to buy back your Life cover after 12 months following a claim. The premium payable on the life cover if you choose to buy it back is payable by you.
As an alternative, you can elect at an additional cost, to add Double TPD and / or Double Trauma on your policy. Unlike the life buy back option the Double TPD and / or Double Trauma option if there is a claim will reinstate the Life cover back to its original amount and the life cover premiums will be waived.
For standalone benefits you could have the same levels of cover as detailed in the previous example, but claiming on TPD or Trauma won’t affect any of the other cover benefits.
Using the benefit amounts in the previous example using standalone Life, TPD and Trauma covers:
• $1,000,000 Life cover
• linked TPD cover of $750,000
• linked Trauma cover of $100,000
| Benefits Paid | Benefits Remaining | |
|---|---|---|
| Example 1 | Trauma claim paid of $100,000 | – Life remains at $1,000,000 – TPD remains at $750,000 |
| Example 2 | TPD claim paid of $750,000 | – Life remains at $1,000,000 – Trauma remains at $100,000 |
| Example 3 | Life claim (death) paid of $1,000,000 | All policies cease due to death of the Life Insured |
There are positives and negatives when it comes to linking TPD and Trauma to Life cover. It is really important that you understand what these are so that you can make an informed decision on how to setup your personal insurance covers to best protect you and your family.
If you would like more information on the of linking TPD and Trauma policies to Life please contact our Life Adviser on the below:
Chris Earle
d (08) 9382 5622
m 0410 331 279
e chris@bruce.com.au
