Learn more about how insurance works and why it’s an important safety net for you and your family.
If you’re like most Australians, you probably insure what’s important to you—your home, your car, your holiday trips. But do you insure what’s probably your most valuable asset – your income?
What is personal insurance and why is it important?
Personal insurance can provide cover when things go wrong, such as the death of an insured person, or if a serious accident, illness or injury leaves you disabled or unable to work for a while.
These kinds of situations can affect your ability to meet your ongoing financial commitments. The insurance proceeds can be used to help pay for things such as debt repayments, everyday expenses and even medical bills.
Your insurer provides cover based on the type of insurance you choose or are provided with, in return for a sum of money you pay at regular intervals, called a premium.
How much insurance do you need?
You’ll need the right amount of insurance to make sure you and your loved ones are looked after financially if something happens to you. You should also consider the different types of insurance you might need, what you’ll be covered for and how much you’ll be paying.
- How much money would you or your family need to pay off your loans or debts
- How would immediate expenses be covered—medical or funeral bills—if you passed away?
- Do you have savings, an emergency fund, assets, investments or super that could help?
- Do you have paid leave entitlements if you were injured or became ill?
- Might you be eligible for government benefits or workers’ compensation?
- How would you cover the cost of treatment and rehabilitation if it were required?
- Would you need to make any modifications to where you live if you were less mobile?
It’s a good idea to work out up-front what you can afford, and if you have any existing cover elsewhere that may be adequate. AMP’s insurance needs calculator can give you a basic idea of how much you need and your financial adviser can help you work out a more detailed plan.
How is your insurance premium calculated?
Your insurance premium depends on whether you have access to insurance through your employer super plan, or if you apply for insurance directly or through a financial adviser. If you apply for insurance directly or through your financial adviser, in most cases you’ll need to go through an underwriting process. This means your insurer will determine the cost of your insurance based on a number of things including your age and gender, and potentially other factors relating to your health and lifestyle.
This may mean you could be asked to provide extra information or even undertake a medical assessment. Using this information, the insurer can more accurately assess your risk and set your premiums to reflect this.
If you have insurance as part of your employer’s super plan, the cost of insurance will generally be calculated based on things such as your age, gender and occupation.
Insurance inside super
Many super plans include insurance as part of their offer. Insurance inside super can include death cover, total permanent disability cover and temporary salary continuance, or income protection cover.
How it works
- Your insurance premiums are paid out of the money in your super account. So, it’s one less expense you need to budget for from your take-home pay.
- However, because the premiums are paid via your super balance then, as a general guide, if your insurance premiums are more than 1% of your salary, it may be eroding your super balance unnecessarily. However, this may not apply to you if you require a higher amount of insurance cover to meet your needs.
- As the insurance is held in your super account, any proceeds (the money you receive if you make a claim) are paid to the super fund who then passes it on to you when you meet a condition of release.
- To be eligible for default cover, you must be 25 years old or over, have an account with a balance of at least $6,000 and be actively contributing to your account. However, even if you don’t meet one or more of these criteria, you can simply ask for insurance at any time.
- Otherwise, in most cases, as soon as you do meet these requirements, the insurance will be provided automatically, and you won’t need to go through an underwriting process (unless you decide to apply for extra cover).
- If your super account becomes inactive (it doesn’t receive any contributions or rollovers for 16 months), super funds are required to cancel the insurance in the account, unless you ask to keep it.
TIP: How to find out if you have insurance inside your super
If you’re not sure whether you have insurance through super, what type of insurance you have or how much you might be paying in premiums, you can check your latest super statement or contact your super fund to find out more. If you’re an AMP or AMP Life customer looking for these details, login to My AMP or check out the My AMP app.
If you do have insurance inside super, you may still have additional insurance needs, depending on your circumstances.
Types of personal insurance
There are four types of personal insurance covering different situations. These definitions are general so you should refer to the product disclosure statement (PDS) for the full terms and conditions of your policy or speak to your financial adviser.
What is life insurance?
Life insurance pays out a lump sum to you (the policyholder) or your beneficiaries if you pass-away or are diagnosed with a terminal illness. While dealing with a situation such as this is never easy, life insurance can help provide financial security for your loved ones, as your beneficiaries will receive a financial payout.
What is total and permanent disability (TPD) insurance?
TPD insurance pays out a lump sum if you become disabled and are unable to work again. The money can be used as you wish, such as to help with your medical costs or living expenses. TPD cover is often only available with a life insurance policy and, if linked to your life cover, the amount of your life insurance will be reduced by the amount of any TPD claim that’s paid.
What is income protection insurance?
Income protection (sometimes called temporary salary continuance insurance) can replace up to 75% of your regular income if you can’t work due to illness or injury. Based on waiting and benefit periods, you can use the money to cover daily living expenses, pay your medical bills and meet rehabilitation costs to help you return to work or find a new job.
What is trauma insurance?
Trauma insurance (only available outside super) provides you with a lump-sum payment if you're diagnosed with a specified medical condition or serious injury, or you undergo certain medical procedures. Medical definitions in your policy will determine what you’re covered for, the definitions will generally take into account the severity of a condition relating to things such as a heart attack, major organ transplant, cancer or stroke.
Trauma insurance is not the same as private health insurance. Trauma insurance will provide a lump sum payment, while health insurance will generally only help pay your hospital and medical bills, and possibly some rehabilitation expenses. A trauma insurance benefit can be used in any way, including helping you meet additional medical costs or repaying your home loan and other debts, as well as any modifications you may need to make to your home.
Four ways to help you manage your insurance policy
Review your cover when things change
Reaching major milestones like having kids, paying off the mortgage, buying or selling an investment property or retiring can affect the amount of insurance you need. You may also choose to review any loadings you have1, additional options you have chosen, or any activities or conditions your cover excludes2. It’s important to review your cover to make sure you’re only paying for what you need.
Manage automatic insurance increases
Your policy may have a feature that automatically increases your cover each year to keep up with inflation. If you decide you don’t need this additional cover, you can cancel your next automatic increase and your sum insured will remain the same.
Tell your insurer about healthy lifestyle changes you’ve made
Making healthy lifestyle changes is a great achievement. For example, if you have quit smoking, you can request an insurance reassessment to see if you can reduce the cost of your cover. If you have exclusions or loadings, these could be removed if your health has improved or you no longer pursue risky hobbies.
Keep your beneficiaries up to date
If you have insurance outside super, you may want to review any beneficiary nominations and if your circumstances or preferences have changed, let your insurer know as soon as you can.
For insurance inside super policies, it is handy to submit your beneficiary nomination to your super provider. Depending on the options available to you, this may expire after a period of time (usually 3 years), which means you’ll have to re-nominate them.
Talk to your financial adviser for more information or if you have an AMP or AMP Life policy or super account, contact us through the details on your policy or super statement.
What happens if your insurance lapses?
If you let your insurance lapse (or expire) you’ll no longer be covered, and you may not be able to get the same level of cover or at the same price again in the future.
If you’re paying your insurance through super and your super balance is not enough to fund your insurance premiums, your insurance may also lapse.
In addition, from 1 July 2019, super providers must cancel the insurance in any super account that’s considered inactive (meaning no contributions or rollovers were made into the super account for 16 months). This intends to protect inactive accounts from having their balances reduced by the cost of insurance, particularly when people may not need that insurance. .
If you want to take out cover a second time, you may need to go through an underwriting process, which will account for your health and financial details at this later point in time. As health can worsen with age, this may result in exclusions or increased costs. Sometimes insurers will allow reinstatement processes with less underwriting, within a short period after lapse or cancellation.
How to make an insurance claim
If you need to make a claim on your insurance, get in touch with your insurance provider. Or if you have insurance through your super, contact your super fund to find out what information they need from you to assess your claim.
If you’re an AMP or AMP Life insurance customer, you can let us know online, or by phone—whatever’s easiest for you. You’ll speak with a claim specialist and will then be assigned a case manager who will help you navigate the claims process. You may be asked to provide medical reports or undergo medical assessments.
We’ll then let you know the outcome of your claim, and if it’s accepted, you’ll receive payment and a recovery plan if appropriate.
1 A loading is an extra amount factored into your insurance premium, which reflects your personal circumstances at the time you underwent underwriting.
2 Exclusions are those activities and conditions you won’t be covered for, because of the risk involved from a pre-existing medical condition.
Products in the Super Directions Fund and the Wealth Personal Superannuation and Pension Fund are issued by N.M. Superannuation Proprietary Limited (N.M. Super) ABN 31 008 428 322 (trustee), which is part of the AMP group (AMP). Before deciding what’s right for you, it’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions available from AMP at amp.com.au or by calling 131 267. Read AMP’s Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.
Products in the AMP Eligible Rollover Fund, National Mutual Retirement Fund, and NM Pro Super Fund are issued by Equity Trustees Superannuation Limited ABN 50 055 641 757 (trustee). Risk products are issued by AMP Life Limited ABN 84 079 300 379 (AMP Life), which is part of the Resolution Life group. AMP Life has proudly served customers in Australia since 1849. AMP Limited ABN 49 079 354 519 has sold AMP Life to the Resolution Life group whilst retaining a minority economic interest. AMP Limited has no day-to-day involvement in the management of AMP Life whose products and services are not affiliated with or guaranteed by AMP Limited. AMP Limited is not liable for products issued by AMP Life or any statements or representations made in the PDS for those products. “AMP”, “AMP Life” and any other AMP trademarks are used by AMP Life under licence from AMP Limited. Before deciding what’s right for you, it’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions available from AMP Life at amp.com.au or by calling 133 731. Read AMP Life’s Financial Services Guide for information about our services, including the fees and other benefits that AMP Life and/or other companies within the Resolution Life group may receive in relation to products and services provided to you.
Any advice and information provided is general in nature, hasn’t taken your circumstances into account, and is provided by AWM Services Pty Ltd ABN 15 139 353 496 (AWM Services), which is part of the AMP group (AMP). All information on this website is subject to change without notice.
Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person.