NEEDS ANALYSIS: LINKED PERSONAL INSURANCE POLICIES
In our article, ‘Your 2019 financial health check’, we highlighted the importance of regularly taking stock of your personal circumstances (financial situation, goals and objectives).
By doing this, you can continue to make informed decisions on the most appropriate path moving forward for your personal finances(cashflow and debt management, investments, personal insurances, etc.).
With this in mind, when it comes to personal insurances and establishing an appropriate personal insurance plan, conducting a needs analysis can form an important initial step in the process.
Needs analysis for personal insurances
A needs analysis can help with determining your personal insurance needs (types and levels of cover) by assessing your capital/income requirements and capital/income resources in the event you were to:
pass away or be diagnosed with a terminal medical condition
become temporarily or permanently disabled (totally or partially)
suffer a specified medical event, such as cancer, stroke or heart attack
Below is a simplistic example of a needs analysis for Life, Total and Permanent Disability (TPD) and Trauma insurance. Given the fields, some may be applicable across all types of covers, whilst others may not be.
Linked personal insurance policies
Given above, there can be instances where some of the capital/income requirements for one type of cover are mirrored in another type of cover – this can often be seen when it comes to the elimination of debt.
For example, if you were to become totally and permanently disabled (TPD insurance) or to pass away (Life insurance), in both instances, you may wish to eliminate the mortgage and other outstanding debts.
However, you wouldn’t need to eliminate the mortgage and other outstanding debts twice, if a claim was made on your TPD insurance and then again (further on down the track) regarding your Life insurance.
With this in mind, it can sometimes make sense to implement a policy structure that sees these two types of cover (even if only a portion) linked together (Life and TPD insurance linked).
So, what does this mean from a personal insurance claim point of view?
Let’s say you had $500,000 in debt that you would like eliminated in the event you were to become totally and permanently disabled or to pass away.
If you were to link a TPD insurance policy with a sum insured of $500,000 to a Life insurance policy with a sum insured of $800,000 then in the event of a successful claim on your TPD insurance, your Life insurance would still remain in force, but the sum insured would be reduced to $300,000.
Importantly, this can be a cost-effective alternative to implementing a policy structure that sees these two types of cover as standalone (Life and TPD insurance standalone).
Please see the below fictitious case study as an example.
^Packaged with the same insurer for ease of comparison (and reflecting policy discounts, i.e. multiple insurance policies).
*A general range has been given to highlight that not all insurance companies have the same risk assessment guidelines nor the same insurance policy offering (e.g. core and supplementary provisions).
Things to consider
Depending on your capital/income requirements across Life, TPD and Trauma insurance, you can have the option of implementing the following policy structures with regards to linking:
Life and TPD insurance linked
Life and Trauma insurance linked
Life and TPD/Trauma insurance linked
TPD and Trauma insurance linked
Moving forward
A needs analysis can help with determining your personal insurance needs (types and levels of cover) by assessing your capital/income requirements and capital/income resources.
Importantly, there can be instances where some of the capital/income requirements for one type of cover are mirrored in another type of cover. For example, when it comes to the elimination of debt.
As such, it can sometimes make sense to implement a policy structure that sees these two types of cover (even if only a portion) linked together. For example, Life and TPD insurance linked.
After reading this article, you may also find the following of interest:
If you have any questions regarding this article, please do not hesitate to contact us.