However as a financial adviser you would be concerned mainly with providing advice on Personal insurances namely the following 4 insurances:

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1 An Introduction to Personal Insurances The concept of insurance has been with us for Millennia and there are a vast array of different types and categories of insurances, ranging from insuring a $10 billion Liquefied Gas refinery to a $200 travel insurance policy. However as a financial adviser you would be concerned mainly with providing advice on Personal insurances namely the following 4 insurances: 1. Life Insurance 2. Total and Permanent Disability Insurance 3. Trauma or Critical Illness insurance 4. Income Protection Insurance In reality, most experienced advisers would refer to Personal insurances by the more appropriate name of Wealth Protection. This is because Personal insurances form the anchor to most financial planning strategies. Please note, there are no savings or bonus components attached to any of these insurances, there are purely insurance only products. 1

2 Let s briefly look at each of the above four personal insurances: 1. Life Insurance This is also referred to as Term Life Insurance. In reality, it is actually Death cover i.e. in the event of death, the benefit could be paid out as a lump sum. The person whose life is insured needs to specify the amount of death cover. This could range from a minimum of $50,000 to a millions of dollars. Most Term life insurance policies also have a terminal illness benefit. This means that if the life insured is likely to die within the next 12 months of a terminal illness, then the entire benefit could be paid to them whilst they are still alive. Term Life insurance could provide you (i.e. the client) with the following o Allow your family to repay debts including mortgage, personal loans, guarantees, credit cards and store cards o Provide an adequate income for your dependents to pay for living expenses, school fees, child care and regular bills o Protect your business if a key person or principal dies o Provide a cash deposit to the estate, which may prevent other assets being sold 2

3 2. Total and Permanent Disability Insurance (TPD) This product would pay out a lump sum amount in the event that you (i.e. the client) suffer from sickness or accident that leaves them totally AND permanently disabled and therefore they are unlikely to ever work again in either their own occupation or any occupation that they are suited to, based on their education and experience. TPD is available under two variations own occupation and any occupation. TPD insurance could provide you (i.e. the client) with the following o Provide funds to allow a family member to give up work to care for you or, alternatively, to fund other home care o Allow you to repay debts including mortgage, personal loans, guarantees, credit cards and store cards o Pay for any major renovations required to your home (e.g. to permit wheelchair access). 3. Trauma or Critical Illness insurance This is a relatively new insurance. Unlike TPD (described above) or Income Protection (described below), the lump sum amount is paid on the diagnosis of a specified illness (e.g. cancer, heart attack, stroke etc.) and not on the client s ability to work in suitable employment. 3

4 Trauma insurance could provide you (i.e. the client) with the following o Pay for unexpected medical costs o Provide for lifestyle changes o Provide for necessary professional care at home o Repay large debts such as a mortgage 4. Income Protection Insurance This insurance is also sometimes referred to as Salary continuation insurance. Income protection insurance provides a monthly payment generally up to 75 per cent of a client s pre-tax income if they are unable to work due to sickness or injury. Income Protection is available under two variants Agreed Value and Indemnity Value. Income Protection insurance could provide you (i.e. the client) with the following o Provide for yourself and your family o Continue to pay your mortgage, bills, credit cards and other debts, and 4

5 o Keep all your investment strategies in place. Unlike other insurances such as general insurances (i.e. car, boat, house etc.), all of the four above personal insurances are guaranteed renewable. This means that once the client is accepted, as long as they pay the insurance premiums, the life insurance company guarantees to renew their personal insurance cover until the expiry of the policy, regardless of how the health may change over time. Hence, the life insurance company would not automatically accept all clients, but their underwriters would carefully evaluate each new application based on the risk that could be associated with that client (i.e. is the client overweight, suffers from a sickness or illness that could lead to premature death or disability, do they engage in a hazardous hobby or occupation etc). These products also carry inflation proofing or automatic indexation of the insured benefit. This means that each year the sum insured would be increased by a certain percentage (usually in line with CPI) to ensure that the amount of cover is still relevant to the client s needs and objectives. In the majority of instances, these insurances would be held under a personal name and not held by a company and trust. Therefore in most instances, the premiums for Term Life, Trauma and TPD would not be tax deductible; however the benefit would normally be tax free. Income protection is a notable exception. The premiums for income protection are tax deductible and correspondingly, the benefit is taxable to the client. 5