Knowledge is power so maybe this will charge your batteries!
Recently I was having lunch (my shout) and discussing life in general. Somewhere in the conversation my lunch partner touched on one of the uniquely constructed features of the CommInsure income protection policy, it's the Total and Permanent Disability option. While it was neither the point of the meeting or laboured on, I thought to bring to you some perspective on this insurance.
Income protection is all about protecting your income flow if you are unable to earn it due to sickness of injury. I am generalising but go with me. Income protection is meant to supply cash flow to you in a similar manner to your normal income so that your life will continue as is. All sounds reasonable so far.
Total and Permanent Disability insurance is about recognising you are changed due to sickness or injury such that you are totally and permanently disabled and not likely going to lead a (in reason) normal life from here on. This type of insurance on recognition normally pays a once off cheque for the prearranged amount you set with the insurer. In some ways it's to afford the extra costs of life you now have because you are totally and permanently disabled. When healthy did you need to afford the wheel chair or special medical costs, the carer for your children, the modifications to your home including ramps and raised floors, lift arms into showers or baths? The list is extensive and your normal income and life never had to afford these. Getting a once off cheque will make a world of difference. Again all sounds good.
So what happened when we blend these two policies together? Well CommInsure have done a Stirling effort at this and even received a favourable tax ruling. I can see it having some really good applications. In essence it's an income protection policy that converts to a Total and Permanent Disability policy when "appropriate". So generally a short term claim gives you income flow and a permanent long term claim gives you a lump sum once off cheque, it's actually written into the policy!
Say I had family in another country and while living here, experienced a nasty event that allowed me to claim, the CommInsure policy could pay me a lump sum and allow me to move off shore to live out my days with my family, a normal income protection policy does not have this normal functionality as it does require regular attendance in Australia. Maybe my doctor tapped me on the shoulder and said my time was up and due to my incapacitating injuries or illness I was to pass soon, the CommInsure policy may pay the lump sum TPD payout and I get a lot of money even though under a normal income protection policy I'd only get a monthly income till my soon to be death, again a big positive. All good reasons to consider this type of policy, I'm sure there are more.
Where I do have concern is when this policy mixing becomes a standard approach for all. What are the implications to you of holding one of these blended policies? I always refer back to my mothers teachings, whenever I asked her what I thought was a complex question I needed help with, she would say "lets understand the basics and this should work it's self out".
Well income protection is about continuing your current lifestyle and TPD is affording the extra costs of a forced change in life, they are different and need to work together. I see the need for both at the same time, I need my income to come in and pay for my bills and home loan, my food and kids upbringing, I currently can't afford big ticket items like a $7000 ramp into my home coupled with a $3000 wheelchair platform on the car or the cost of the wheel chair. If I don't have TPD cover then something will have to suffer. If I also don't have an income stream something will have to suffer.
We have now hit the core of this issue. Insurance is about financial loss mitigation, it's not about financial gain or part cover of financial loss, it is exactly about trying to hand the responsibility of loss (financial) to someone else (the insurance company) so you don't have to worry about it. Where the CommInsure Income Protection/TPD policy grates me is if it's sold on the bases of potential financial gain! Or worse as a strategy to formally separate from the insurance company on a long term claim. Remember the basics of Income Protection? Gives you an ongoing income during sickness of injury. If the policy converts to a lump sum cheque then you now have the responsibility and worry back on your own shoulders to turn this cheque into a long term income stream and in today's investment environment you may realise how hard it is to maintain a steady income from investments. If you still had a regular income protection policy then investment return aren't your concern or problem and your lifestyle will continue on. If you had a separated TPD policy you would also have funds to afford those unexpected costs.
The benefits to the insurance company of this combined policy are designed into the policy calculation please don't worry about that, they will look after themselves. You on the other hand need to make sure there are benefits to you.
In conclusion, this policy is packed with features! Are they of benefit to you is the question. With expert help and a return to the basics your solution should become apparent. Many people have this policy for all the right reasons and many just as rightly don't. Get Advice!