Insurance Buy Back Explained

When establishing Total and Permanent Disability (TPD) Insurance, trauma or life insurance, you will need to decide whether to take out cover as linked policies, or as stand-alone policies.

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If you choose a stand-alone policy, when you claim on one type of insurance, the other insurances are not affected. The benefit of stand-alone cover is its ability to claim on covers without affecting the rest of your cover. However, this makes stand-alone premiums higher.

With linked cover, a claim on one insurance will usually reduce the rest of your insurance cover that carries forward. For example: suppose you have $500,000 in life insurance cover and $300,000 in TPD insurance, and you make a claim on the TPD Insurance. After the claim, your life insurance will be reduced to $200,000 to reflect the claim that has been made.

TPD Buy Back

In the above example you may be able to buy back the TPD insurance at a later date. This means that after 12 months, you can reinstate the life insurance back up to the original $500,000 of cover, in essence buying back your cover to the original amount. A buy back for TPD insurance is included as standard by some companies, and other will offer it as an addition that will increase the premium.

Trauma Buy Back

A trauma buy back works in the same way as a TPD buy back. After a claim you can reinstate your life insurance back to the original cover amount. Generally this is 12 months after the original claim.

Trauma Reinstatement

A further option with trauma insurance can be trauma reinstatement. This allows your trauma insurance to be reinstated in the event of a claim, meaning that you may be able to make multiple claims against the single trauma policy. This is usually offered as an extra and will attract an additional premium.

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