Understanding Insurance Coverage
Life, TPD, Trauma, Income Protection & Business Expenses
Insurance is an essential tool for protecting yourself, your family, and your business against unexpected financial hardships. Below, we break down key insurance types—Life, Total and Permanent Disability (TPD), Trauma, Income Protection, and Business Expenses—so you can better understand what they cover, the benefits of each, and how to determine the appropriate levels of cover for your unique situation.
Life Insurance
What it Covers
Life insurance provides a lump sum payment to your beneficiaries in the event of your death or terminal illness diagnosis. It can be used to cover outstanding debts (such as a mortgage), funeral costs, and ongoing living expenses for your family. It ensures your loved ones are financially protected if you’re no longer around to provide for them.
What to consider
- Mortgage repayments
- Education costs for children
- Funeral expenses
- Family’s ongoing living expenses
Premiums & Tax Deductibility
- Life insurance premiums are generally not tax-deductible if held outside superannuation.
- If held inside a superannuation fund, the premiums may be tax-deductible to the fund, but benefits may be taxed when paid out. Premiums can be setup to be paid via your superannuation fund, or personally from a bank account or credit card.
Total and Permanent Disability (TPD) Insurance
What it Covers
Total & Permanent Disablement (TPD) insurance provides a lump sum payment if you become totally and permanently disabled, rendering you unable to work. This helps cover medical costs, rehabilitation, and everyday living expenses.
What to consider
- Home modifications (if required)
- Ongoing medical treatment or care
- Loss of income
- Debt repayment
Premiums & Tax Deductibility
- TPD insurance premiums are **tax-deductible** if held through superannuation.
- Premiums paid outside of super are **not tax-deductible**.
- Premiums can be setup to be paid via your superannuation fund, or personally from a bank account or credit card.
Trauma Insurance (Critical Illness Insurance)
What it Covers
Trauma insurance provides a lump sum payment if you’re diagnosed with a specified serious illness or injury, such as cancer, heart attack, or stroke. The payout can help with medical bills, rehabilitation, and support for your family during recovery, easing financial stress when you need it most.
What to consider
- High medical bills for treatment or surgery
- Recovery and rehabilitation costs
- Modifications to your home or lifestyle changes
- Additional support for your family during recovery
Premiums & Tax Deductibility
- Trauma insurance premiums are generally not tax-deductible.
Income Protection Insurance
What it Covers
Income protection provides a monthly benefit (usually up to 70% of your gross income) if you’re unable to work due to illness or injury. It ensures you continue to receive a portion of your income, which helps you cover ongoing living expenses, mortgage repayments, and other financial commitments while you’re unable to work.
What to consider
- Your monthly living expenses
- Debt repayments (mortgage, credit cards, etc.)
- Length of benefit period and waiting periods
- Whether your policy covers your specific occupation
Premiums & Tax Deductibility
- Income protection premiums are tax-deductible if the policy is taken outside of superannuation.
- If held within super, the tax deductibility may apply to the super fund.
Premiums can be setup to be paid via your superannuation fund, or personally from a bank account or credit card.
Business Expenses Insurance
What it Covers
Business expenses insurance is designed for self-employed individuals and small business owners. It covers your fixed business costs, such as rent, utilities, and salaries, if you are unable to work due to illness or injury. It ensures your business can continue operating even when you’re unable to work.
What to consider
- Monthly fixed business expenses (rent, utilities, staff salaries)
- Duration of coverage (how long the policy will pay for business expenses)
- Your role in the business (is it critical to daily operations?)
Premiums & Tax Deductibility
- Business expenses insurance premiums **are tax-deductible** as a business cost.
Coverage Level Guide
When determining how much cover you need for any of the above insurance types, it’s essential to consider several key factors:
1. Current Debts
Consider outstanding loans, including your mortgage, car loans, and any credit card debt.
2. Income Requirements
Estimate how much income your family or business would need to maintain their standard of living if you are unable to work or pass away.
3. Future Costs
Factor in future financial commitments, such as your children’s education, ongoing family expenses, healthcare, or retirement savings for your family.
4. Existing Coverage
If you already have some level of cover through superannuation or other sources, review it to see if it’s sufficient.
How You Can Structure Your Insurance
1. Inside Superannuation
Many people opt to hold life, TPD, and income protection insurance through their super fund. The benefits include tax-deductible premiums for the fund and ease of payment through your super balance. However, there can be restrictions on accessing benefits, and tax implications when the payouts are made to non-dependent beneficiaries.
2. Outside Superannuation
Holding your insurance outside of super can give you more control over the policies and provide quicker access to benefits. It also allows you to have a broader range of policy features, particularly for trauma cover. However, premiums for certain types of cover, like life and trauma insurance, are generally not tax-deductible.
Premiums & Tax Deductibility
Holding your insurance outside of super can give you more control over the policies and provide quicker access to benefits. It also allows you to have a broader range of policy features, particularly for trauma cover. However, premiums for certain types of cover, like life and trauma insurance, are generally not tax-deductible.
At Failsafe, we are here to help you navigate these options and guide you to the most appropriate insurance cover for your situation. Reach out to us and let us assist you in safeguarding your future with the right insurance protection!
