Insurance Advice Guide — Life, TPD, Income Protection & Trauma

There are four main types of personal insurance in Australia:

Life insurance (death cover): Pays a lump sum to your beneficiaries if you die or are diagnosed with a terminal illness. Used to cover debts, replace lost income, and provide financial security for your family.

Total and permanent disability (TPD): Pays a lump sum if you become totally and permanently disabled and cannot work again. Used for medical expenses, home modifications, debt repayment, and ongoing living costs.

Income protection: Pays a monthly benefit (up to 75% of your pre-disability income) if you are unable to work due to illness or injury. Typically has a waiting period (30, 60, or 90 days) and a benefit period (2 years, 5 years, or to age 65).

Trauma (critical illness) cover: Pays a lump sum upon diagnosis of a specified critical illness (e.g., cancer, heart attack, stroke). Not available inside super — must be held as a standalone policy. Used for immediate medical and living expenses.

The right amount of cover depends on your personal circumstances. Consider:

• Life insurance:**
• Outstanding debts (mortgage, personal loans, credit cards)
• Number of years your dependants need support
• Education costs for children
• Funeral and estate settlement costs
• Any existing cover (through super, employer, or other policies)

A simple rule of thumb: 10-12x your annual income, minus existing cover and assets. But this varies significantly — a single person with no dependants may need very little, while a parent with young children and a large mortgage may need substantially more.

• TPD insurance:**
• Similar to life insurance calculation, plus consideration of medical and rehabilitation costs
• May need more than life cover if you would face ongoing care expenses

• Income protection:**
• Covers up to 75% of your pre-disability income
• Consider the waiting period you can afford (longer waiting period = lower premium)
• Choose a benefit period that covers your needs (to age 65 provides the most protection)

• Trauma cover:**
• Typically $100,000-$250,000
• Designed to cover immediate costs and allow you to focus on recovery without financial stress

Most Australians have some insurance through their super fund. Understanding the differences is important:

• Inside super:**
• Premiums are paid from your super balance (preserves your cash flow)
• Premiums are generally cheaper (group rates)
• Cover may be more limited (e.g., TPD definition may be "any occupation" instead of "own occupation")
• Life and TPD death benefits paid from super may be taxed for non-tax-dependants
• Income protection benefits are taxed as income
• Default cover may not be enough for your needs

• Outside super (standalone policy):**
• Premiums paid from your own pocket (but income protection premiums are tax-deductible)
• Generally more flexible definitions and features
• TPD "own occupation" definition available (you are covered if you cannot do your specific job)
• Trauma cover is only available outside super
• Life insurance proceeds are generally tax-free
• Higher premiums but potentially better cover

The right approach is often a combination — use super for basic life and TPD cover, and supplement with standalone policies where needed. An insurance adviser can help you optimise this mix.

Unlike most areas of financial advice, commissions on insurance products are still permitted. Here is how it works:

Upfront commission: The adviser receives a percentage of your first year's premium. Since the Life Insurance Framework (LIF) reforms (phased in from 2018, fully effective from 1 January 2020), upfront commissions are capped at 60% of the first year's premium. A clawback provision also applies — 100% clawback if the policy lapses in year 1, 60% in year 2.

Ongoing (trail) commission: The adviser receives a smaller percentage of your annual premium each year you hold the policy, capped at 20% under the LIF reforms.

Fee-for-service: Some advisers charge a flat fee for insurance advice and rebate any commissions. This model is less common but growing.

• What this means for you:**
• Commissions must be disclosed in the Financial Services Guide and Statement of Advice
• The commission does not change the price of the policy — it is built into the premium
• However, it can create a potential conflict — the adviser earns more from recommending more or more expensive cover
• The best interest duty still applies — the adviser must recommend what is appropriate for you

Ask your adviser how they are paid and whether they compare policies across multiple insurers.

Review your insurance when:

• You get married or enter a relationship — your partner may depend on your income
• You have children — your cover needs increase significantly
• You buy a home — your mortgage is a major liability to cover
• You change jobs — your income, employer cover, and super fund may change
• You receive a salary increase — your income protection may no longer cover 75%
• You pay off debts — you may be able to reduce your life cover
• Your children become independent — your cover needs decrease
• You approach retirement — assess whether insurance is still needed
• Annually — premiums change, your circumstances evolve, and better products may be available

Many people set up insurance and never review it. This can result in being underinsured (not enough cover) or overinsured (paying for cover you no longer need).

When looking for insurance advice:

• Check ASIC registration — verify they are on the Financial Advisers Register and authorised to advise on insurance
• Ask about their process — a good adviser will conduct a thorough needs analysis before recommending products
• Ask how many insurers they compare — more comparison generally means a better outcome
• Understand their fee model — commission, fee-for-service, or hybrid
• Check for specialisation — some advisers specialise in insurance and risk advice
• Ask about claims support — a good adviser will help you with the claims process if you ever need to use your insurance

• Questions to ask:
• How many insurers do you compare?
• Do you receive commissions, and if so, how much?
• What happens if I need to make a claim — do you assist?
• How often will you review my cover?
• Do you recommend insurance inside super, outside super, or both?