This is lump sum cover which is usually tacked on to a life insurance policy and will pay out in the event of a major trauma such as a stroke, heart attack, various cancers and so on.
Please note it has to be major, but not necessarily terminal.
e.g. for someone not working, or partial but cheaper cover.
Total and permanent disablement – TPD
TPD would pay you a lump sum in the event that you had a major stroke or other illness that prevented you from working - from your current occupation or at all ? The definition of total and permanent disablement is quite narrow so the cover will depend on the wording – read the fine print before paying for it.
Then think about the cost versus the benefit .
“If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.” ― Henry David Thoreau
Can you rely on ACC?
ACC will pay you 80% of your past taxable income if you cannot work due to an accident. At least we hope so.
Remember it is accident only.
And no income people who not have a taxable income.
e.g. . mothers at home – no ACC income
If you are self-employed and declare a low taxable income, you won’t get much
It is also pretty well known that ACC are carrying a lot of long term liabilities and do not have unlimited cash, so it would be unwise to rely on them too much.
Life policies should be cross owned, or owned by your family trust
In the event that a husband or wife dies, the survivor will usually need the money urgently. If the husband owns the policy on his own life, his widow will not be able to get the money until probate has been granted, and that can easily take 3 to 6 months. That is assuming his will is valid, otherwise it will take longer.
It is much better for the wife to own the policy on her husband’s life and the husband to own the policy on his wife’s life. Then all the survivor needs to do is get the death certificate, which usually takes less than 14 days, and then make a claim to the insurance company.
Since life insurance is pretty simple (you are either alive or you are dead) insurance payouts are pretty straightforward and it is rare for small print to get in the way.
If you have a family trust, then your policies should probably be owned by the trust – if in doubt, ask your trust adviser first.
Who wants to sell life insurance to you?
· All life insurance agents
· All the banks
Insurance agents make commission so they have a vested interest in convincing you should buy some life insurance, preferably with adds ons too.
There are some very professional agents out there who will make sure you get the right cover. There are some who are not so hot too.
Bank staff are required to sell added services over-the-counter, including insurance.
No matter who sells it to you, make sure you need it as it is going to cost you money. Ensure you are getting the right cover and value for your money. Pay it attention, be selective, and don’t be sold to.
Life insurance pays good commissions so there will always be salesmen who want you to drop your old policy and change to them.
Also, if you have picked up a medical condition, even a small one, since you took out your old policy, you might find that condition is excluded, or more costly.
This is a grey area, but never cancel or let go an old policy until you’re sure the new one is as good, if not better.
All too often it won’t be. The regulators are looking at this, but you can’t rely on them to protect you.
Supplied by Alan Clarke, financial & retirement adviser, & author. He also writes regular articles for the media & on line – see www.acfs.co.nz
His second book is due out in May 2014 & is entitled “The Great NZ Work, Money & Retirement Puzzle”.
Alan is an independent authorised financial adviser (AFA) FSP26532 & his disclosure statement is available on request and free of charge.