Life insurance and income protection: Thinking about the unthinkable

Life insurance and income protection | Beanstalk Single Mums

Do you ever lie awake in bed at night thinking about what would happen to your kids if something unexpected was to happen to you?

I’m guessing the answer is probably yes.  And while no parent wants to spend time thinking about the unthinkable, unfortunately part of your role as a parent can be that you need to spend time thinking about all the important stuff, no matter how hard it might be.  That can include life insurance and income protection.

For single parents, this is an even harder thing to think about.  Many single parents don’t have the luxury of knowing that a current or former partner would step up and step in to look after your kids.  But of course, this means it’s even more important for single parents to have a plan in place to look after their kids if they aren’t able to.

If you couldn’t work for an extended period of time, would you still be able to cover your day to day living expenses, including rent and mortgage?  And if you were to pass away, are you confident that your kids would be financially secure?   

It’s too easy to put income protection and life insurance in the ‘too hard’ basket, telling yourself you’ll get around to it another day.  Not only is it an unpleasant topic to think about, but it’s also confusing to understand the difference between life and income protection.

This article aims to help you understand and navigate through some types of insurance which could help to protect your family’s financial future. 

WHAT IS THE DIFFERENCE BETWEEN INCOME PROTECTION AND LIFE INSURANCE?

Put simply, life insurance can help look after your beneficiaries if you were to pass away (really, it should be called ‘death insurance’ but I guess that wasn’t going to get past the marketing department…).   Income protection on the other hand is all about helping to replace some of your income if you were unable to work for an extended period of time due to injury, accident or illness.  It’s important to understand that income protection doesn’t cover you for things like quitting your job, being made redundant or fired. 

SO HOW DOES INCOME PROTECTION WORK?

When your family relies on a single income, the thought of that income disappearing is frankly terrifying.  Income protection insurance can provide single parents with peace of mind as it replaces a percentage of your income (generally up to 75%) if you are unable to work due to illness, accident or injury.  Income protection is generally paid weekly or monthly (like a normal income) and is designed to help you cover living expenses such as rent, mortgage, bills and the general day to day costs of being a single parent.

When taking out an income protection policy, you can choose how long you’ll receive benefits for (generally between two year and/or up to age 65 which does obviously impact the cost of your premium) and the length of your waiting period (anywhere from two weeks to two years).

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INCOME PROTECTION CAN BE TAX DEDUCTIBLE

In some cases, income protection policies can be tax deductible which can help make the premiums more affordable.  You can also choose to fund your income protection through your superannuation meaning it won’t chew into your take-home pay (but if you choose this option, it’s not tax deductible).

WHAT ABOUT LIFE INSURANCE?

No parent wants to think about what would happen to their kids if they were to pass away, but for a single parent that thought is even more confronting.  While nothing would replace your presence in your kids’ lives, life insurance can help ensure their financial needs are at least taken care of.

The term ‘life insurance’ is often used as a catch-all phrase but there are actually a few different types of life insurance that help protect your family if you pass away or were permanently unable to work.  Unlike income protection which is paid in instalments, life insurance is paid in a lump sum and helps to cover expenses such as mortgage, funeral costs or your kids’ education fees.

WHAT ABOUT TPD AND TRAUMA?  WHAT ARE THEY?

In addition to income protection, there are three main types of life insurance that are generally referred to under the umbrella term of ‘life insurance’:

  • Term life insurance (this one is essentially death cover) pays a pre-agreed amount in a lump sum at the upon death.
  • Trauma cover is insurance cover for critical illnesses, such as cancer, strokes and heart attacks. It is paid in a lump sum which can cover medical expenses and ongoing recovery and rehabilitation costs.

There is a bit of overlap between the different product types so you may decide that you only need a couple or want the protection that comes from having all your bases covered. Before deciding on a level of insurance ensure you review the insurers Product Disclosure Statement (PDS) which will outline information about policy inclusions, limitations and exclusions.

BUT DOESN’T MY SUPER PROVIDE LIFE INSURANCE?

Most superannuation policies do include some form of life insurance but it may not be sufficient to meet your family’s financial situation. It’s worth finding out exactly how much is covered through your super policy and deciding whether it is an adequate amount.  If not, then you may decide to look into a stand-alone policy.

I’M TOO BUSY TO THINK ABOUT IT!

Parents are busy people, and single parents are just about the busiest people on the planet!  So if income protection and life insurance has been on your to-do list for some time but you just haven’t got around to it, then it may be time to get started.

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iSelect’s qualified life insurance advisers can help you compare from a range of life insurers and policies[1].  And that’ll hopefully mean you’ll have one less thing to worry about as you are lying in bed awake at night.

Disclaimer:

*iSelect does not compare all life insurers or policies in the market. We therefore don’t compare policies offered by life insurers who are not our providers. We maintain an internal list of approved life insurance policies that our advisers compare from all of our providers. We call this our ‘Approved Product List’. We have commercial arrangements with each of the providers.

iSelect Life Pty Ltd – ABN 89 124 304 347, AFS Licence Number 331128. Any advice provided by iSelect is of a general nature and does not take into account your objectives, financial situation or needs. You need to consider the appropriateness of any information or general advice iSelect gives you, having regard to your personal situation, before acting on iSelect’s advice or purchasing any policies. You should consider iSelect’s Financial Services Guide which provides information about iSelect services and your rights as a client of iSelect. iSelect receives commission for each policy sold. Click here to view our range of providers.

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Laura Crowden

Laura Crowden

Laura is the Corporate Affairs Manager at iSelect and is passionate about helping Aussie families reduce their household bills and expenses. Outside of work, she’s mum to a cheeky eighteen month-old boy and a disgruntled cat.

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