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Personal / Risk Insurance

How safe are Life Insurance Companies?

The global financial crisis has, understandably, caused a few jitters among people wondering about the security of big companies in turbulent times.  Querying what actually happens to your policy if your insurer closes up shop is commonplace and the answer is very simple.

Life insurance is protected by its own special Act of Parliament.  If a company cannot continue to operate, a judicial manager will be appointed to that insurance company.  The manager is charged with the key task of arranging for other life companies to take on the existing policies and claims.

In short if a company was to close, the other life companies take on the policyholders of the existing company.  This arrangement ensures that individual cover remains intact, as set down by The Life Insurance Act.

Could the recent natural disasters send the company broke?

In the business of insurance it seems obvious that the premiums the insurance company charge and the number of claims they pay would drive the performance of companies such as IAG and QBE. In reality much of an insurer’s profit comes from how well they invest their ‘float’ – the flow of premiums from policyholders that they have yet to pay out in claims.  Insurance company profits are often driven more by the performance of their share fund investments than their exposure to a recent natural disaster.

Term Life, Life,Death

What would life be like for your family if you died?  Life insurance gives security to your family by providing for their current and future needs upon death or on diagnosis of a terminal illness that will end in death within 12 months. A lump sum is usually paid to the beneficiaries upon the death of the policyholder.

Purpose: Eliminates likely financial hardship after the death of a spouse, particularly the breadwinner.  Pays outstanding debts, such as mortgage and leaves a lump sum to be invested to cover the cost of future family needs such as children’s education.

Total and Permanent Disability (TPD)

While your life insurance policy provides for your loved ones in the event of your untimely death, a Total and Permanent Disability Insurance Policy provides for you and your family if you are totally and permanently disabled either by accident or sickness either in your own or any other occupation  effectively losing your ability to earn an income forever.  E.g. paraplegia or depression results in you not being able to live without assistance.

Purpose: Eliminates financial hardship in the wake of being unable to work again.  The money pays debts and leaves a sum to be invested to replace income.  Provides financial assistance to ensure your needs are taken care of and your family continues to maintain their existing lifestyle.

Income Protection

People tend to insure valuable things that would be hard to replace, like their house or car. But even more valuable to most people is their ability to earn income – the source of all the payments that support their life and lifestyle.

How would the loss of your income affect your ability to repay your home loan, maintain your investment portfolio and continue your retirement planning?

Income Protection Insurance provides a replacement of up to 75% of your usual monthly income when you are off work due to accident or illness.    The premiums are usually tax deductible, whilst any claim benefit received is income tax assessable.

Purpose: To eliminate hardship and protect your family’s lifestyle by providing a replacement income, should an accident or sickness strike the breadwinner.

Trauma/Critical Illness

Trauma/Critical Illness Cover provides a lump sum of money to assist you if you happen to be diagnosed with any of the defined events in the policy such as cancer, heart attack, stroke.

Purpose: Eliminates financial hardship so you can concentrate fully on recuperating and making any necessary lifestyle changes. The money pays debts, medical costs and a lump sum to be invested to cover lifestyle changes, e.g. wheelchair access to be built at home or a modified motor vehicle.

In Australia:

Unfortunately, even those who live very healthy lifestyles can be struck down by sudden and unexpected illnesses.

Do not believe the old adage that “It can’t happen to me”.

Statistics to ponder

Medical science is constantly seeking new treatments for cancer, cardiovascular disease and other serious illnesses. Many people recover and live normal lives after these traumas, but the expense of treatment and loss of income during such a debilitating illness can be distressing. Trauma/Recovery Insurance provides a lump sum payment to help meet the everyday and extraordinary expenses that follow a range of serious illnesses.

These are some of the illnesses usually covered by Trauma / Recovery Insurance.

(This list may vary depending on the insurance company used.)
Alzheimer's Disease
Loss of Speech
Lung Disease - Chronic Major Organ
Multiple Sclerosis
Parkinson’s Disease
Coronary Bypass Surgery
Heart Valve Surgery
HIV - Occupational Acquired
Liver Disease - Chronic
Aortic Surgery
Benign Brain Tumour
Loss of Limbs & or Eye
Aplastic Anaemia
Burns - Severe / Major
Major Head Trauma
Motor Neuron Disease
Pulmonary Hypertension
Coronary Artery Anoia
Heart Attack
Kidney Failure - Chronic
Loss of Independence Exist
Out of Hospital Cardiac Arrest
HIV - Accidental Infection
Life Facts

Some life statistics you may be interested in

Packaged Life Insurance

Term life, Trauma and TPD are sold separately but they can be packaged together in one policy with one company.

Purpose: Cover is provided for each event, Advantage may be gained through a lower premium.

Insurance inside superannuation

Super funds usually offer three main types of life insurance:

Death Only

This pays your nominated beneficiary as a set amount upon your death.

Death and Total and Permanent Disability (Death/TPD)

Includes death only insurance but you are also able to claim against your insurance policy if you are catastrophically injured or cannot work again because of a disability.  If you make a TPD claim though, upon you death your insurance cover reduces to the balance of the overall insured amount not already paid.

Income Protection (IP)

Sometimes also called Salary Continuance Insurance, Sickness and Accident Insurance or Temporary Disability Insurance. If you cannot work because of injury or temporary disability you can claim part of your lost salary while you are recovering.

Our senior life representative believes that a yearly review is mandatory to ensure any changes to your own personal circumstances have not been accidently overlooked.


For further information or a consultation please do not hesitate to Contact FAAR

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