It’s difficult to appreciate the benefits of life insurance until something terrible happens. Perhaps if you better understand the product first, that won’t be necessary.
So, let’s dive into the big question: what is life insurance?
Life insurance (sometimes called term life insurance) does exactly what it says on the tin: it insures your life. A dollar amount is put next to your name, and your dependents receive this amount in the event of your death. They can use this lump sum of cash to pay off the family home, pay school fees, etc.
Who needs Term Life Insurance?
- Anyone who believes their family would struggle to pay off debts on their own.
- Someone who wants to leave an inheritance to their family.
- Those who believe they’d struggle to pay for costly medical expenses/accommodation costs if they were terminally ill.
What to consider when taking out Term Life Insurance
- A stay-at-home parent saves the household money on childcare expenses. You’ll need to account for such childcare expenses if your partner has to go back to work in your absence.
- Taking out life insurance when you’re younger can be more cost effective over the long term. This is because you can lock in a cheaper rate with a level premium structure (although it does increase with CPI), which generally changes if (a) you alter your policy, or (b) you reach a certain age (usually 65).
- If you would prefer a cheaper policy from the get-go, you can instead utilise a stepped premium This starts out cheaper than a level premium, but get more expensive as you age. You have to decide which is more important: cheap insurance now (stepped), or less money paid over the long run (level).
- Things like smoking, dangerous occupations, and risky hobbies could influence how much life insurance costs you.
- Life insurance is included in many superannuation funds. If you’re unsure if you have insurance already through your superannuation, call up your fund and check. If so, make sure it covers you to the extent you’re happy with.
- Like health insurance, you may have to sit through waiting periods before you can claim. This will be clearly outlined on your product disclosure statement (PDS).
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.