Murray Allen John (Patrick) McLennan.
In Loving Memory of My Murray. Sadly, shortly after 9:30pm on the 13th night of December 2024, My...
Insurance explainer: what's the difference?
Insurance explainer: understanding the difference between funeral plans and life insurance
Navigating the world of insurance can be overwhelming, especially when considering the intricacies of funeral plans and life insurance.
In this guide, we'll walk you through the differences between funeral plans and life insurance, ensuring you have a clear understanding of what life insurance entails and can make a decision that suits your unique situation and needs.
Term life insurance: protecting your loved ones
What is term life insurance?
Term life insurance, also known as 'life cover' or 'death cover', is a type of insurance that provides a lump sum payout to the beneficiaries you've nominated on your policy in the event of your passing.
Coverage and benefits
Term life insurance serves as a safety net for your loved ones. If you were to experience a terminal illness or pass away, the policy pays out the agreed lump sum. This financial support can help your family during a difficult time, ensuring they're not burdened with the immediate financial challenges that can arise from a loss.
Total permanent disability (TPD) insurance: protecting your future
Understanding TPD insurance
Total Permanent Disability (TPD) insurance steps in if you're faced with a permanent disability caused by an accident or illness, which renders you unable to work.
Coverage and benefits
This type of insurance offers a lump sum payment that can cover medical expenses, rehabilitation fees, and everyday living costs. It's designed to alleviate the financial strain that often accompanies an inability to work due to disability.
Trauma insurance: navigating critical illness
What is trauma insurance?
Trauma insurance, also referred to as 'critical illness cover', provides a safety net when you're diagnosed with a major illness like cancer, heart disease, stroke, or other life-threatening conditions.
Coverage and benefits
Trauma insurance aids you in covering various expenses associated with critical illnesses. These can include out-of-pocket medical costs, therapy expenses, nursing care and even changes to housing if needed. Understanding the specifics of coverage is crucial, so always consult the Product Disclosure Statement (PDS) before choosing a policy.
Income protection: safeguarding your livelihood
Exploring income protection
Income protection insurance comes to your aid when you're unable to work due to illness or injury. It's designed to replace a portion of your income during such periods.
Coverage and benefits
This insurance type pays out a percentage of your pre-tax income, ensuring you have financial support to cover your essential expenses. The amount typically depends on your earnings prior to your illness or injury. Mortgage protection and redundancy cover often fall under the umbrella of income protection, but it's essential to review your PDS to confirm.
Considering the costs
Affordability matters
When evaluating your insurance options, cost is undeniably a factor. Select a policy that aligns with your budget. Funeral plans and life insurance policies come with varying costs, so take the time to review and compare the premiums associated with each. Keep in mind that while funeral plans often have fixed costs, life insurance premiums may change over time.
RELATED ARTICLE: Prepaid Funerals: Should I pay upfront or in instalments?
Insurance explainer: what's the difference?
Calculating adequate coverage
As you ponder which insurance route to take, consider the amount of coverage you need. For funeral plans, the coverage typically relates to the funeral expenses, whereas life insurance covers a broader spectrum of financial needs. Assess your family's financial obligations and future goals to determine the appropriate coverage amount that will safeguard their well-being.
Selecting the right coverage for you
Personalised choices
There's no universal solution when it comes to choosing between funeral plans and life insurance. Your decision should be based on your individual circumstances and needs.
RELATED ARTICLE: Things you might not know about prepaid funerals
Assessing your needs
Immediate financial protection: If you're primarily concerned about relieving your family of funeral expenses, a funeral plan might be suitable.
Long-term financial security: If your goal is to provide ongoing financial support to your loved ones, especially if you're the primary earner, life insurance offers broader coverage.
Comprehensive coverage: Consider your family's financial goals, outstanding debts and potential future needs.
Flexibility: Think about whether you want your family to have the freedom to use the funds for various purposes beyond funeral-related expenses.
The choice between funeral plans and life insurance hinges on your commitment to securing your family's future. Funeral plans offer immediate relief from funeral-related costs, while life insurance provides a more extensive financial safety net. Regardless of your decision, take your time to consult financial advisors, read through policies carefully and make a choice that brings peace of mind to you and your loved ones.
