Many of us naturally wonder what will happen to our families and homes when we’re gone – especially if we pass away earlier than anticipated. It’s for this reason that many of us consider life insurance. If you want the right cover at the right price, consider the following.
Do I already have life insurance?
Many people have life insurance through their superannuation, and they may not even know it! Moneysmart.gov.au suggests you ask your super fund the following questions to determine the extent of any existing cover you have.
- What insurance do I have?
- What amount am I covered for?
- Under what circumstances would I (or my beneficiaries) receive a payout?
Do you have enough cover through your superannuation, and are you comfortable with the circumstances in which you’ll receive a payout? If not, move on to the section below!
Why should I get life insurance?
The next question to answer is whether or not you even need insurance. You may have little to no debt, and plenty of money saved for a rainy day. If this is the case, your family may not miss your income in the event of your death.
But many families rely on two incomes to stay on top of expenses, pay bills, put the kids through school, and more. Or, families rely on a stay-at-home parent to keep the household running. But that person may have to go back to work to make up for lost income, meaning that childcare expenses need to be organised.
Generally speaking, the purpose of life insurance is so that your family is paid a lump sum in the event you’re diagnosed with a terminal illness or pass away. This money can really help alleviate the stress of paying the expenses outlined above.
Am I even eligible for life insurance?
While most Australians are eligible, you may not be able to get life insurance if, for example,
- you have a serious, pre-existing condition (e.g. a terminal illness),
- you have a particularly dangerous occupation, or
- you supplied false or misleading information in your application.
What types of insurance can I get?
If you think this kind of insurance is important to you, here are the different types you can get.
- Term Life Insurance. As mentioned, standard life insurance policies pay what is called a ‘death benefit’ (a lump sum of money) to your dependents if you die, or if you are diagnosed with a terminal illness.
- Trauma Insurance. Pays a benefit if you’re diagnosed with a terminal illness, or are critically injured.
- Total and Permanent Disability (TPD) Cover. Pays a lump sum to help compensate for a lack of income in the event you’re sick or injured to the extent that you can no longer work.
- Income Protection. In the event you’re unable to continue to earn income due to illness or injury, income protection insurance ensures you still receive up to 75% of your wage for a period of time.
- Funeral Insurance. This product helps pay for funeral expenses.
A linked policy is essentially a bundle of life insurance products (e.g. term life insurance, trauma insurance, TPD cover), where you share the benefits of all underneath one sum insured amount.
When it comes to a typical term life policy, you need to decide if you’ll choose level or stepped premiums. What’s the difference? Level premiums are locked at a certain amount (besides small increases in line with inflation) when you take out your policy, while stepped premiums increase with your age.
How much money does my family require when I’m gone?
MoneySmart suggests you look at your assets, the money you have in accounts and investments, and add it all up. Then, add up all your debts, and any expenses that need to be paid until your dependents can sufficiently support themselves.
Do the two numbers cancel each other out? If not, you should consider life insurance. Rice Warner suggests you may need to insure yourself to the value of roughly 10 times your current income. Start your search for life insurance by keeping these figures in mind.
Who will my life insurance payout go to in the event of my death?
Whoever you nominate when you take out your life insurance policy receives the final payout. Your beneficiaries will receive your death benefit as soon as they can produce the correct information to the insurer. Typically, this is in the form of a death certificate, proof of insurance, etc.
How often should I review my cover?
You should review your life insurance policy whenever your circumstances change (e.g. you have another baby, you get a promotion at work). Keep in mind that a change in circumstances could affect the price of your premiums. If you’re ready to review, read through our article on the process of getting life insurance – so there aren’t any surprises!
Ready to compare? Find cover by trying our life insurance comparison service.
The information provided here is general only and does not consider your personal objectives, financial situation or needs. Before you decide to purchase a product, it is important to read the relevant PDS.