At LMC Insurance, we will help guide you and structure your insurance to meet your current and future needs. With access to Australia’s leading insurance providers, we can offer competitive pricing & definitions for the policies that are best suited to your individual circumstances.
LMC Insurance is a subsidiary company of LMC Financial Services WA.
DisclaimerThis website contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.
Life insurance provides a lump sum benefit upon the death or diagnosis of terminal illness of the insured person to the policy owner. The required level of insurance depends upon your financial circumstances, and should take into account your outstanding debts and the ongoing lifestyle requirements of your surviving dependant family members.
Term life insurance policies can be held as a standalone policy by the policy holder, or within superannuation.
Total and permanent disablement insurance (also referred to as TPD) provides for the payment of a lump sum benefit in the event the insured becomes totally and permanently disabled as a result of illness or injury and is unable to work again. The definition of total and permanently disabled varies among insurers and the definitions in the PDS should be carefully considered.
Total and Permanent Disablement (TPD) contracts are normally attached to term life policies and can also be held inside or outside superannuation. Payment of a lump sum TPD is generally made in circumstances where the insured is:
Trauma or critical illness insurance is designed to pay a lump sum on the diagnosis of an insured medical event defined in the policy. Trauma policies can cover the following medical conditions, including:
Note: Events and definitions vary from policy to policy.
Trauma insurance is usually taken out to assist in the payment of medical costs associated with the recovery from such an illness. It may also include an allowance for the necessary adjustments to be made to the home in the event of an associated disablement from the illness. It is important to understand the specific conditions that are covered and those that are not as well as any waiting periods that may apply for the particular policy that you are applying for. The conditions and benefits available under trauma vary widely and the principal criteria for assessment should be the quality of the policy as opposed to price.
Income protection insurance provides cover for income lost due to the inability to work through sickness or accident. They pay a regular income stream either fortnightly or monthly depending on the policy provisions, rather than as a lump sum.
The amount of cover you can purchase is usually restricted to 75% of the monthly income earned prior to the insured’s disability or illness. It is important to note that income earned refers to income generated through personal exertion or labour. Income generated via investments is not covered under these policies. Some superior policies acknowledge the role of salary packages in determining income. Many policies only consider PAYG salaries, thereby leaving the insured at a substantial financial disadvantage if unable to work. Many contracts further allow a % to be paid into a superannuation fund of the client’s choice, effectively providing for an amount to continue to build retirement savings.
Income protection benefits payable are subject to a waiting period, which can range from 14 days to 2 years. The waiting period will directly impact that premium payable, and this should be weighted as a consideration along with the impact on the insured’s financial position, should the waiting period prove to be too long for their existing financial resources.
The length of time the benefit is payable can also vary from 2 years to age 65. However, should the insured recover and be able to return to work, the benefits payable will cease. It should be noted that as these policies provide for a replacement of taxable income, the regular payments from a claim under an income protection policy are usually taxable at the insured’s marginal tax rate. On this basis, income protection premiums paid are generally considered to be an allowable tax deduction.
The calculation of benefits payable on an income protection policy is based on whether the policy is an Agreed policy or an Indemnity policy. In the case of an Agreed policy, the insured is required to provide financial evidence to the insurer at the time of applying for insurance in regard to their current earnings. This evidence is assessed by the underwriters, and the benefit payable is agreed at that time.
Should the insured subsequently make a claim on the policy, the benefit payable is the amount that was agreed at the time the policy was taken out by the insured. Should the insured be earning less than the agreed amount at the time of claim, the benefit payable will still be the agreed amount. In the case of an Indemnity policy, the insured is not required to provide financial evidence at the time of applying for insurance. In the application to the insurer, the insured estimates their current income and the premium is based on that estimate.
Should the insured then make a claim on the indemnity policy, the insured will at that time be required to provide financial evidence with regard to their pre-disability earnings. The benefit payable will be based on the pre-disability earnings of the insured, and not necessarily the amount stated in the initial application. The amount payable will be the lesser of the insured’s actual earnings prior to claim or the amount stated on the policy schedule.
These different policies should be considered carefully when taking out income protection insurance. Indemnity policies are flexible and allow for fluctuations in income however agreed policies provide greater certainty.
This protects business owners in the event that one or more of your key staff cannot work for you anymore.
It offsets losses and costs by compensating you with a fixed monetary sum, helping you to:
In the event of bankruptcy, retirement, death, long-term disability or divorce, a buy / sell policy provides the surviving partner of a business partnership with the money to buy out their partner’s interest in the business (and therefore meet the buy / sell agreement).
For all of the insurances policies described above, the premiums payable can be calculated on either a stepped or a level basis. A stepped premium means that the annual cost of the insurance policy increases with the insured’s age. The actuaries for the insurance provider calculate the additional likelihood of a claim being made as the insured ages, and build that in to the premium each year.
A stepped premium would be more cost effective for someone younger, who is willing to pay smaller premiums now, and accepts that as they get older, the premiums will continue to increase.
A level premium means that the cost of the insurance policy does not increase due to the insured’s age increasing. The actuaries still build in the additional likelihood of a claim being made as the insured gets older however this is built into the cost of the premium from day one. A level premium would be more expensive than a stepped premium for a younger person however the insured has the peace of mind to know that their insurance premiums will not increase with age. As the insured’s age approaches 60 the premiums for insurance can become extremely expensive if the premiums are stepped, and therefore the benefits of having paid additional money for level premiums when the insured was younger will certainly become evident as the insured ages.
The decision as to which type of premium is most appropriate should be based on affordability and certainty.