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Written by Kris Wrenn – Senior Financial Adviser & CFO
When it comes to Risk Management and deciding what levels of cover are right for you, one size certainly does not fit all. As such the insurance industry continues to evolve and cater to individual needs and scenarios. In this article I will take a brief look back at how the insurance world has changed and how several new species of “Hybrid Insurances” may be an effective way to reduce your premiums and cater to your particular needs.
Historically life insurance was divided between Whole of Life policies or Endowment Policies. Whole of Life paid out a premium on death and endowment policies had a set term where they paid out regardless of how the policy owner had fared.
We then saw the introduction of Term insurance, where life cover was provided through a renewable term policy. Where Whole of Life and Endowment policies were like owning insurance, Term insurance introduced a way to effectively rent your insurance.
The 1970s saw the introduction of Total and Permanent Disability (TPD) and the 1980s saw Trauma insurance begin to appear, but in both cases these were rider benefits added on. Today these policies are known as Bundled policies and it is important to understand that they reduce the value of other benefits. E.g. If the insured has $1 million of life and TPD, and they subsequently become permanently disabled they will be paid the $1 million TPD benefit. However, should they subsequently die they are not entitled to receive another $1 million of life benefit.
Standalone insurances on the other hand, are in addition to a policy and do not reduce or offset other policies. They are understandably more expensive as a result. If you have your insurances under super however there are potential means to make use of them.
Having some extra standalone TPD cover outside of super can be a means to offset the tax payable on your TPD under super.
Hybrid policies are made up of both bundled and standalone components and are often required to satisfy specific trauma and TPD needs and can be more cost effective than either standalone or bundled policies, i.e. they can be very effective for people who want varying levels of life and TPD but do not want the added cost of standalone policies. E.g. those that are looking to achieve self-sufficiency (via TPD) but do not have any dependents (so less need for life cover).
When considering life insurance we are also faced with a choice between stepped or level premiums. Stepped premiums are cheaper while the insured is young and steadily get more expensive through time, while level premiums remain the same throughout the life of the insured. Again we have seen the introduction of new hybrid policies that seek to achieve the best of both of these worlds. They begin as stepped to provide a cheaper means of insuring while the person is young, but become level (capped) at a certain level.
It can be very easy to treat your insurance provisions as “set and forget” policies, but as the insurance industry continues to evolve and offer new types of policy to cater to every individual, it can be very worthwhile having a review to see what is more appropriate to you.
Contact your adviser or the Hudson in-house insurance expert Aaron Alston on 1800 804 296 to book a call.