Carrying the proper insurance can help protect you and your family from all manner of unexpected and expensive events. We all know it’s important to have coverage for our homes and vehicles, but we don’t really like to think about insuring our own lives.
Life cover is generally pretty affordable, but you still need to make sure you get the right policy for your family. Read on to get all your questions answered.
What types of life insurance are there?
Life insurance usually pays a lump sum of money to your beneficiaries upon your death. The policy may or may not come with terminal illness cover, which pays out if you are diagnosed with a terminal illness that ends your ability to earn money.
Total and permanent disability insurance often falls under the umbrella of life insurance, but it kicks in when you experience an illness or injury that doesn’t take your life but makes it impossible to work again.
Accidental death insurance is a different product. It only activates if you die by accident. This insurance has a lot of exclusions, and does not pay out if you die by illness or suicide.
Whatever type you choose, take the time to read the product disclosure statement so that you fully understand the terms.
Who needs life insurance?
Before you purchase a policy, make sure it’s something you really need. If you don’t have dependents, traditional life insurance is not truly necessary. It’s a product designed to take financial pressure off of people who rely on your income to keep a family afloat.
However, even single people can benefit from other types of insurance that are associated with life cover. Total and permanent disability and income protection insurance can help you continue to pay the bills in the case of your temporary or permanent disablement. Trauma insurance can be used for medical expenses not covered under public or private health insurance.
How much life insurance do I need?
Ideally, your life insurance payout should allow your family to cover all of their monthly expenses for a period of time, with some left over to save or invest. Take stock of the monthly budget to get a jumping off point for coverage.
Then, consider how much other money flows into the house. Does your partner have a job? Are there investments that could be liquidated or assets that could be sold? Money that your family can access after your death lessens the total amount of life insurance you’ll need to carry.
Using an online life insurance calculator is a great way to narrow down the best level of coverage for your family, but you can also reach out to a financial adviser for direction.
Where do I buy life insurance?
Working adults in Australia are required to invest in a superannuation (or “super”) plan to save for retirement. Many of these plans include life insurance by default, so check if yours does before buying an additional policy.
You can increase your coverage level if needed right through super, and it’s typically cheaper than buying that insurance separately.
If you need to purchase life insurance that is not administered through your super plan, reach out to a financial adviser, and insurance broker, or an insurance company with a strong reputation for fairness.
What information is required to apply?
Like any insurance product, the underwriting company will hope that you don’t actually need it. Therefore, the application will take into consideration the likelihood of your death during the policy’s term. You’ll need to answer some questions about your lifestyle, health, and any hazards you face on a daily basis.
Some policies require an actual medical examination before approval, while others trust your answers on the application. Having a medical condition doesn’t necessarily disqualify you from the coverage, but expect to pay more for it.
What do I need to know about premiums?
The cost of your policy will vary significantly based on multiple factors, including the level of coverage you need, your age, and your health. A rough estimate says that a healthy man of 40 will pay about $4.40/week for $250,000 of coverage, while a healthy woman of 40 pays just $2.80/week for the same coverage.
There are two different types of premiums, stepped and level. Stepped premiums are calculated by your age, so you’ll pay less when you are young and steadily more as you age. Level premiums stay the same throughout the policy’s term.
However, level premiums are calculated upon an average premium, so you pay more when you’re young than with a stepped premium. Overall, though, level premiums tend to save money.
Before purchasing a life insurance policy, check whether or not you already have it through your super plan. Sometimes many types of coverage are all bundled together and you aren’t sure what exactly you carry. If you do have some life insurance coverage but need more, speak to the program’s administrator at your office about bumping up this protection.
If not, a financial adviser can be very helpful in terms of guiding you toward the right product and making sure you understand all of the exclusions and policy terms. You can also approach a broker or insurance company directly.