Bundling multiple types of coverage into a combined life cover policy may help you save on insurance. This can include life insurance, TPD, trauma cover, and income protection. It’s important to understand the advantages and disadvantages, as well as the impact of claims on your payout, before choosing between a linked or standalone policy that best meets your needs.
The Difference between standalone and linked cover
Linked Cover
A bundled cover is a policy arrangement that combines multiple types of lump-sum coverage into a single policy with one premium. These policies are typically less expensive because if benefits are paid out from one type of cover, it will impact the other benefits available for all covers included in that specific plan.
Pros:
- Easy policy handling.
- Usually cheaper premiums.
- Minimal paperwork.
Cons:
- Your combined coverage might not fit your needs anymore if your situation changes.
- When you make a claim on one type of coverage, your other benefits might go down.
How Does Linked Policy Work?
Linked life cover operates similarly to personal insurance. By paying a single premium, you gain access to multiple coverage types, each offering the same features and benefits as a personal policy. However, if you file a claim for one type of coverage, the sum insured for the other policy types will be decreased by the amount claimed.
Case Study
Sandy is a 40-year old non-smoking female living in NSW and she takes out cover for $1,000,000 of Life Insurance as well as Total and Permanent Disability (TPD) Insurance to the value of $500,000 (Any occupation) you can generally expect to pay a premium of around $45.78 per month. If you are then injured and unable to work, have a full claim on TPD cover. Then, her Life insurance will be reduced from $1,00,000 to $500,000 after your TPD claim has been paid.
Standalone Cover
These policies are usually issued as a single policy with one premium. You typically have the option to buy additional coverage types from the same insurer, but each would have its own separate premium and policy number. Since each policy is maintained independently, filing a claim on one policy generally won’t impact the benefits of your other policies.
Pros:
- The amount of coverage you have will not be reduced if you file a claim under a different coverage type.
- Generally, you will have greater flexibility to adjust your coverage as your situation evolves.
Cons:
- Having several policies usually results in higher premiums.
- In most cases, managing multiple policies can be challenging due to varying renewal dates.
How Does Standalone Policy Works?
Standalone life insurance policies offer individual coverage that functions separately from other policies. Unlike combined policies, where different cover types are interconnected, making a claim on a standalone policy does not affect the benefits or sum insured of your other policies. This guarantees that each policy maintains its full coverage, providing enhanced flexibility and transparency. However, standalone policies might come with higher premiums because each one is independently underwritten and priced.
Case Study
Sandy is a 40-year old non-smoking female living in NSW and she takes out cover for $1,000,000 of Life Insurance and a seperate Total and Permanent Disability (TPD) Insurance to the value of $500,000 (Any occupation).
Because these policies are separate, she will typically pay a somewhat higher premium than a combined policy, with life insurance costing approximately $30.94 per month and TPD coverage priced at $32.50 monthly.
If she suffers an injury that leaves her permanently unable to work and make a successful claim on your TPD policy, you will receive the full $500,000 payout. However, because your policies are not linked, your Life Insurance cover remains at $1,000,000, unaffected by the TPD claim. This ensures that your beneficiaries still receive the full life insurance benefit in the future, providing greater financial security.
Which types of cover can be combined?
It is common to combine a life insurance policy with either Trauma cover, a Total and Permanent Disablement (TPD) policy, or both. Additionally, you can link your critical illness insurance with your TPD policy for added protection.
- Life and TPD Insurance: Total and Permanent Disablement (TPD) insurance is frequently associated with a life insurance policy. If you become totally and permanently disabled and are unable to work, this coverage typically provides a one-time lump sum benefit.
- Trauma and Life Insurance: By linking your life insurance policy with trauma cover, you ensure protection in the event of being diagnosed with a condition outlined in your Policy Disclosure Statement (PDS). This type of coverage generally pays out a benefit to assist with medical expenses.
- Critical Illness and TPD Insurance: If you already possess a life insurance policy, you may opt to keep it as a standalone policy. In this scenario, you can link a TPD and Trauma insurance policy for additional coverage.
- Income Protection: Typically, income protection cannot be combined in the same way as certain types of lump sum coverage. However, some insurers may offer a multi-policy discount of 5-10% when you purchase a lump sum policy alongside your income protection.
Super Linking
Typically, super linking enables you to acquire a combined policy that is partially owned by your super fund and partially in your own name. For instance, this allows you to have Life Insurance and Any Occupation TPD cover within a super fund, while Trauma Insurance is linked outside and held in your name.
FAQs
Who benefits from a combined policy?
A linked insurance policy is generally a suitable choice for those seeking comprehensive coverage at a more affordable rate. Nonetheless, it’s advisable to explore all available options before determining if linked cover meets your needs, as individual circumstances and requirements vary.
What is a buyback option?
A life cover buyback benefit is an additional option you can acquire to enhance your family’s financial protection. This benefit generally allows you to repurchase a portion of the decreased life insurance 12 months after receiving a full trauma or TPD claim.
How can I determine if my insurance is linked or standalone?
To ascertain whether your policy is individual or combined, it’s advisable to review the information provided in your policy documents or Product Disclosure Statement. Alternatively, you can contact your insurer directly to inquire about your policy details.
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Author Profile: Jeffrey Liu, JP, is the founder and principal adviser of Hippo Insurance (aka: Hippo Wealth), with a deep expertise in wealth protection. His extensive experience includes roles in the wealth management divisions of Westpac, ANZ, and a local multi-family office. As the host of “Riches Talk,” a podcast dedicated to cultivating personal and business growth, Jeffrey has established himself as a thought leader in developing life riches. His insights have been featured on SBS, The Australian, and Channel 7. Notably, he was a semi-finalist on Australia’s Got Talent in 2010. Learn more at http://www.hippoinsurance.com.au
