Know your insurance
From beneficiaries and benefits to policies and premiums, personal insurance is full of technical terms. Here are some common questions – and answers – that may help you better understand the world of insurance, and how it can help ease financial 
stress resulting from difficult and challenging life events.
Is there a rule of thumb for how much cover you need?
Generally, you need to think about having enough cover to pay off your mortgage and any other outstanding debts you have such as credit cards, maintaining your family’s lifestyle and needs such as childcare and education costs, and replacing your income should you be unable to work either in the short term or permanently.
To help make things easier, you may want to try the AMP calculator ‘How much insurance do I need?’ at amp.com.au/calculators.
What does insurance cover?
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Life insurance – pays the full sum insured when the insured person dies or is diagnosed with a terminal illness, meaning they have less than 12 months to live.
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Total and Permanent Disablement (TPD) cover – provides an agreed lump sum payment if you become disabled and are unable to work again.
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Trauma cover – pays an agreed lump sum if you suffer a serious illness or injury that is covered under the policy, such as cancer or heart attack.
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Income Protection – generally pays you a monthly benefit of up to 75% of your regular salary, (and in some cases, 100% of your regular superannuation contributions into your superannuation fund) for an agreed period of time (eg two years), while you are too sick or injured to go to work.
Life insurance, as well as other insurance such as TPD and Income Protection cover, may be provided through your superannuation fund. You may want to check the insurance offered under your superannuation fund, your level of cover and whether you should increase it depending on your needs. Keep in mind that Trauma cover is generally not available through your superannuation fund.
What does stand alone or linked insurance mean?
Depending on your particular insurance needs and circumstances you may wish to consider either stand alone or linked insurance.
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If you elect to take stand-alone insurance policies, then if a claim is paid for one type of cover (eg trauma cover), it will not reduce the insured amount of any other cover (eg life insurance).
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If you elect to take linked cover, then if a claim is paid for one type of cover (eg trauma cover) the insured amount of any remaining cover (eg life insurance) will be reduced by the amount paid.
Why should you nominate a beneficiary for life insurance?
If your life insurance is held outside superannuation, you may wish to nominate one or more beneficiaries. This strategy avoids your life insurance payment going to your estate. By nominating a beneficiary, your life insurance proceeds will go directly to the people you want it to go to. Your nominated beneficiaries do not necessarily have to be your dependants[1].
If your life insurance is held within superannuation and you wish to nominate a beneficiary, this nomination will apply to your whole superannuation account (ie your account balance and any insurance proceeds you receive). Superannuation law requires that the beneficiary is either a dependant or your estate/legal personal representative. You can generally nominate a beneficiary in one of two ways:
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Binding nomination – If you make a binding nomination that satisfies all legal requirements, then you are directing the trustee to pay your superannuation (account balance and any life insurance) to the beneficiaries you have nominated. Most binding nominations expire after three years, so you need to remember to keep your binding nomination up-to-date.
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Non-binding nomination – If you make a non-binding nomination, the trustee will take into consideration your wishes as to who receives your life insurance. But unlike a binding nomination, the trustee will ultimately decide which of your beneficiaries will receive your life insurance. Even though most non-binding nominations do not lapse, it is still important to keep it up-to-date.
If you do not make any nomination, the trustee of the super fund will usually either pay your superannuation (account balance and any life insurance) to your estate or to a dependant, using its discretion.
Got more questions or need more detailed answers to suit your personal circumstances? Speak with us, today on (08) 9315 4788.
[1] Dependants include deceased’s spouse and children under age 18, anyone financially dependent on the deceased and anyone with whom the deceased had an interdependency relationship just prior to death.
What you need to know
Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning Pty Ltd and other companies within the AMP group will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.
